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SPEAKER 1: The following is a presentation of the ILR School at Cornell University. ILR, advancing the world of work.
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SPEAKER 2: Good morning, good afternoon, or good evening, depending on where you are joining us from. I want to welcome you to our ongoing series, webcast series from CAHRS. One of the things we'd like to do is make sure we're bringing to you all of the latest research from both our student researchers and our faculty.
And today, we get to highlight the research of one of our newer faculty to the department, JR Keller. So JR is going to talk to us a little bit about his research on internal hiring. One thing I'll encourage you to think about is that throughout the webcast, we're going to take questions. So feel free to send those in and we'll integrate them as much as possible. So with that, I'll turn it over to JR.
JR KELLER: Thanks, Chris. I'm very excited to talk to you for the next 20, 25 minutes about the research that I've really spent the last seven years on, which is focused on how companies can make the most of internal hiring. And I want to break this down into three segments, and talk to you first about something that many of you and your organizations may already know, which is why internal hiring is so valuable today. And then how do you actually do it correctly? So how do you get the right people into the right jobs?
And then the third, and the question that I've been really wrestling with more recently is, how do you handle internal rejections? When you have people competing for jobs inside the firm, a lot of times you have to tell people no. But you often want them to stick around. So how do you get them to stay after you've already told them no?
So if we start first by talking about why should we hire internally, there are lots of benefits for both firms and for employees. And one of the big reasons is that external hiring is often a really expensive gamble. There are lots of good reasons to hire externally. You may need to bring in diverse skills to fill gaps in your technological know-how, to add demographic diversity to the firm, to acquire important social capital, because you may have people outside the organization that have relationships that you want to tap into. And it can be a really powerful tool for signaling strategic change and for changing the culture of the organization.
But there's a lot of reasons why it doesn't work. When you're changing cultures, changing organizations, there are all sorts of reasons why it can be tough to get up to speed. And what the research tells us is that external hires come into the organization and they're much more likely to quit and to be fired than internal hires. And for the privilege of trying to bring them up to speed, you're often paying a 15% to 20% external premium.
But there's also lots of benefits, besides overcoming these barriers that are associated with external hiring, there are a lot of benefits to workers. We know, and most individuals know, that one of the key ways to advance your career is to move across organizations. But what's really interesting is that the data actually shows that while jumping from one company to another can give you a big salary boost, if you actually want to get promoted to a job with more responsibility, those moves are 20% to 30% more likely to take place inside organizations.
So internally, internal hiring is a great boost for careers. While externally, it's a big boost to salary. And all the recent data suggests that employees would actually like to stay with their organizations if they could. They know that they have to move at some point in their career. But for those of you who have had to do this before, you know that changing employers can be really disruptive professionally, because you're moving to another organization where you may not understand the culture and you're taking a big gamble with your career.
But it also can be very personally disruptive, especially if it requires a move across country, even across a zip code where you're having to uproot your personal life to do this. And so all of the data that's coming in over the last few years that surveys of college students, surveys of early career workers, and even surveys of high school students suggest that people would much rather stay with employers for a longer period of time. And then even for those workers who aren't moving currently, hiring other internal workers provides a really positive signal that there will be opportunities for advancement in the future.
So it has all these positive spillovers. And so what I've noticed in my own research and my conversations with companies is that companies are increasingly coming to understand the value of internal hiring. We used to do this 20 years ago. It's all we did. And then over the last 20 years, we focused a lot on hiring externally and building up our talent acquisition departments. Now we're saying look, internal hiring is really valuable. But a lot of organizations haven't paid attention to how to do this effectively. And so that's what I want to transition to next and talk about how to best hire internally.
So if you're going to focus time, energy, and resources on this, how do we actually get our current employees to new jobs in the firm and make sure that those matches are ones that meet the needs of the organization, but also allow individuals to build customized careers? And there are two common ways that organizations move people around in the organization. One of these is through job posting. And job posting is exactly what it sounds like.
Most of your organizations probably have an internal job board where a hiring manager will post a job, often working with somebody in HR to craft that job description, opens that up to individuals in the company, maybe also externally, and allows anybody within the organization who meets those requirements to compete for that position. Generally, what happens is HR will look at the list of applicants, cull that down to a tight list, send that on to the hiring manager, and the hiring manager will make a decision about who to interview. And ultimately, make a decision about who to hire for the job.
But an alternative mode to get people into jobs is what we call sponsorship. And that's where a hiring manager already knows somebody that they want to hire for an open job. And instead of going through the whole posting process, they simply take that person and essentially slot them into the open role. There are lots of reasons to do this. One, hiring managers when they do this, they often know the candidate they're going to move into that job.
And so they feel like they have this information not only about the person's credentials, but how they'll fit into the group. How their personality will work. If they'll mesh and have a good relationship with the hiring manager. And it also can be a lot quicker. You don't have to sort through the resumes and the applications. You don't have to take time to interview. And so you put people into that job.
And so the big question I had was, which one of these is more effective? And the research here is pretty unambiguous. And it's that posting jobs works a lot better. It works a lot better for the firm and ends up being a lot better for workers. And part of the reason is, if you think about this, even the most well-connected hiring manager in a large organization can't possibly know all the candidates within the company that could be a good fit for the job. And so posting the job reduces the likelihood that the manager will overlook a really good candidate that they don't know personally.
In addition, it really does something in a way that helps to discipline the decision making process and add some accountability. Because there's something really simple that we often overlook when we think about posting jobs, and that's that you have to come up with a job description. And so you actually have to sit down and think about, what are the skills and qualifications that are going to make somebody a success in this job now and in the future.
And so when you're reviewing resumes and thinking about candidates for that job, you're actually thinking about identifying people with those skills and capabilities that allow them to excel in the job right away. And what's a little bit different internally than externally is that you often are in the position where you want to explain to unsuccessful internal candidates why they didn't get the job.
And so you're going to want to be able to explain that to them very objectively, which means the criteria you're going to use to make your decision process is going to likely be much more focused around the actual job, as opposed to how well you get along with that person, if you really like that person, all of these things that can help cloud our judgment about who should be moved into a job.
It also leads to higher salaries for workers. So workers who move through posting tend to move into that job and get a 4% to 5% salary bump. In part, because they feel empowered because you had them compete for a job that they're in a position where they can negotiate the salary. Whereas, if a manager came to you and said, hey, I want to move you up from this director to the VP role, here's what we're going to pay you.
You're going feel very indebted to that person for not making you compete for that job. So you're less likely to say hey, thanks for this. Can I also have a salary raise? But one of the things that I found, and one of the reasons I've been hesitant to recommend to firms that they just post every job and make it competitive, is that posting doesn't just create winners. But it also creates a lot of losers.
SPEAKER 2: So maybe before we go on to talk about the silver medalist and the bronze medalist in the competition for these jobs, there's a couple of questions that have come in. One just simple process question. So those of you who are interested in the materials, we'll post the full video on the CAHRS website later today and make the slides and so on available.
Other questions-- so one of the ones that has come in is, people have talked about in their companies they have a posting system, but the employees don't really believe in it, because what they believe is the manager already knows who they want to hire. So they're reticent to apply. And they're not feeling a high level of trust that if they do apply, they'll even be considered. So how do you think companies should deal with that?
JR KELLER: So we tend to call these, in the literature at least, we call them wired searches. So the hiring manager already is connected to the person they're going to bring into this job. And this is a real big issue. So the benefits that I talked about, the whole reason that posting works is because you have an expanded pool of candidates that the hiring manager is actually going to consider. And that you're actually looking for people who can do the job well, as opposed to just having people throw out their qualifications, but not actually considering them.
And so one of the ways that I've seen the most effective way to do this-- one of the least effective ways, is to say, hey, all hiring managers, all jobs have to be posted in the organization, because what it means is there are going to be managers who already know somebody who is going to be in that job. And then it is going to happen that that candidate's going to get selected. And the people are going to feel like the sponsorship happened anyway.
And so what a couple of companies that I've worked with have done that has been really effective is they create two separate systems. So you create a posting system and a sponsorship system. And if a manager has a candidate in mind, then they can submit that individual's name through a sponsorship system. And essentially gets approved by the next level supervisor. You give a reason why you think that person is a good fit for that job. And if it gets approved, you allow that person to move into that job. And then you're not also subjecting candidates to unnecessary competition.
SPEAKER 2: Good. Another question that people have come up, and maybe this isn't surprising either is, with the advent of technology and HR, it seems like there's lots of ways that maybe posting can get augmented. So whether that's artificial intelligence pushing candidates to apply, like suggesting, hey, here's jobs that are open for you, or vice versa helping to surface candidates that didn't apply. Any thoughts on that idea of technology and how it's going to change the posting?
JR KELLER: Yeah. And I think it's already having an effect on how companies are thinking about this. And I'll answer that question part way and hold a little bit of it off to the next piece. Because one of the challenges is if you're going to be recommending jobs to people, you have to be fairly confident that they have a good chance of getting that job, because otherwise you're setting people up for failure.
You're not only doing that, but you're setting their expectations high that they might get a job. But then there's a high chance that they might say no. So part of it is really thinking carefully about how people have moved in the past and where they might move in the future. But it is a big thing, because one of the benefits of posting that I didn't mention is that what the data that I've looked at shows is that it can be a really effective way to help people in non-headquarters locations.
It can be a really good way to find people, in what we might call more marginalized roles, actually apply for jobs because they wouldn't otherwise hear about them. So one of the big things for posting to work really well is making sure that employees are aware of the opportunities that are posted. So to the extent you can use technology to push out notices about these instead of requiring people to actively go to a job board and find out about these opportunities can be really effective.
SPEAKER 2: Great. A couple more folks have come in with questions, and they seem to be similar. And they're a little concerned. So you mentioned this notion of employees' internal promotions more likely to negotiate higher salaries. Is there a long-term cost to the organization? Does it become more costly than a different route for hiring?
JR KELLER: Sure. So there is this clear trade-off. You're making a better hire, but you're also paying people more. So overall, is the firm capturing any value in doing this? But it turns out right. If you think about this, the premium is 4% to 5%. And this is on the salary. So on total compensation, it ends up being 4% to 5%, which might seem like a big number. But you're also getting folks who are going to be subsequently promoted much faster.
So you're finding people who are-- you're building future leaders. And more than that, probably the most powerful thing is, you're finding people who are less likely to be fired and less likely to voluntarily exit the firm. So think about all the cost savings in terms of retention, not having to go out to get new people. All in all, it seems to me that the value you're going to capture from this is way higher than the salary you're going to pay.
SPEAKER 2: Great. So I know we've got a few more questions. We'll try to get back to those in a minute. But I want to make sure you get the next big segment in. So let's move on and then we'll come back to some more questions.
JR KELLER: So perhaps it's appropriate, since it's the Winter Olympics right now, to talk about finishing in second place or being a silver medalist. Because one of the things that happens when you encourage managers to post jobs and then encourage employees to apply for this is that, it's great for the winners. It's not so great for the losers. And so what I've been trying to figure out with some colleagues is to figure out, how can we make this a process where folks who apply for jobs that you still want to have stay in the organization actually do stick around.
And one of the big things that we found is thinking about rejection is not just emotional. So when we tend to think about rejection, we say, oh, people's feelings are going to be hurt. Do they feel like the process was fair, which comes back to this issue of wired searches. But if you think about your internal labor markets today, 25 years ago, it would be really clear exactly how you would advance in an organization. These job ladders were super clear.
If you come in as an entry level financial analyst how you're going to get to a director or a VP, there's five or six steps you're going to take. And then you're going to get there. And it's a really clear path. But now, it's not so clear. We restructure organizations all the time. The skills demands that we have change. We have flatter organizational structures. We have managers moving. And employees moving all over the place.
And so it can be a really confusing place for employees, because they don't know what the next step should be. And the next step for this next year might not be the next step three years from now. And even if you have a mentor in the organization, and you want to follow their footsteps, the job that they took to get to their job five years ago might be gone. And if it's not gone, it probably involves a totally different set of responsibilities.
And so one of the things that I've noticed that workers are doing is they're using the internal market as a source of information. They're saying, I'm not totally sure what I want to do or what I'm qualified for, so I'm going to apply to jobs to gauge my opportunities for future advancement. And even if I don't get this job, what does my experience tell me about if I'm going to be able to get jobs in the future.
And so what I've been able to do is study turnover among a whole big set, about 2,000 rejected internal candidates. And find out among these folks who applied for jobs and didn't get them, who was more likely to stay with the organization over the next year and who was more likely to leave. And the results are pretty startling. What we found was that rejected internal candidates are 60% more likely to stay in the organization if another internal candidate was hired for the job, as opposed to an external candidate being hired.
In part, because hiring an external candidate appears to send a signal that the firm isn't providing the pass-through advancement that this individual's looking for or that the organization might have in the past. So I'm not recommending to you that you only hire internal candidates. But it is worth noting that if you have a candidate that you're rejecting for a job, an internal candidate, and you end up hiring somebody outside the firm and you want to keep that person, it's really important to talk to them about what future advancement opportunities for them are going to be. Otherwise, it's really likely that they're going to assume that they don't have a lot of paths for advancement.
Additionally, we looked at how far along in the hiring process did you get. So if your hiring process is like that, and many organizations I've come across, there's sort of three main steps. There's one, you have people send in their resume. And there's some sort of an automatic screening process. So if you're requiring a master's degree and the candidate doesn't have a master's degree, they get automatically filtered out of the process. Then there is a process where somebody from HR reviews that resume, may actually do a pre-interview of that candidate before putting them onto a short list for the hiring manager to interview.
So we looked at what happens at rejection in each of those different stages. And it turns out, it's really important for internal candidates to get interviewed by the hiring manager. If the hiring manager took the time to interview an internal candidate, even if they were rejected, they were 50% more likely to stay than somebody who was rejected before getting an interview. And there's a really important caveat here. And that is, it has to be an interview with the hiring manager. So folks that got to the stage where somebody from HR interviewed them, were just as likely to leave as somebody who got filtered out and just got an automatic message from the recruiting system.
And so for better or worse, it is the fact that candidates still see HR as a gatekeeper. And unless they get the time and attention of the hiring manager, they don't feel like future applications are going to be taken seriously. And then the other thing, back to what I talked about a little bit earlier which is internal labor markets can be really confusing, and so there's this thought that candidates might be more likely to leave if they expect to get the job. And we did find this in some of our research. Now it's really hard to understand to the extent to which people actually do expect to get hired.
But one of the things we looked at was, is the candidate applying for a job that seems like a natural fit from the job they're in now. So for example, if I'm a financial analyst, am I applying for a senior financial analyst role versus if I'm the financial analyst and hey, I really love what those HR guys are doing. I'm going to be able to sign up for these CAHRS webcasts and do this. So I'm going apply for that job.
It's a much more idiosyncratic move. So when folks have seen other people in their current job make a transition to another job, and so they're trying to emulate what their peers have done, and then they don't get hired for that job, they're more likely to leave. And part of this is the thinking that look, if I can't even make this relatively simple transition that other people are making, the chances of me being able to make other moves in the future are pretty limited.
So one of the things that we tried to do after finding this data is we partnered with an organization to say, are there actually interventions that we can do to help keep rejected candidates engaged and wanting to stay with the firm? And so we found a couple of really interesting things here. So one of the things is that we did this big survey of every internal applicant in the organization over an eight month period. This was like 13,000 internal candidates-- because we had no idea if they were going to get the job or not-- asked them about their intentions to stay, how they felt about the firm.
If they were looking internally or externally, trying to find out why people were applying for jobs. And then if somebody got rejected, we then surveyed them later to find out what their attitudes were, what they thought about the process. And again, if they weren't planning on staying with the organization. And we found something that's really surprising, and that's really kind of very technical in nature. So it turns out that the way most talent acquisition systems are set up, is that as soon as a hiring manager makes a decision, they'll send this to HR. And HR will check a box that somebody got hired and other people got declined.
And then the system immediately sends out an email to candidates to say, you didn't get the job. So it's this form email goes out. And it goes out to internal and external candidates. And if candidates got that email before the hiring manager picked up the phone, or sat down to type them an email, they were really, really upset. And even if they got contacted by the hiring manager later, they felt it was damage control. And so it's really important to think about like this is really just sort of a system set up piece, that the hiring manager themselves contacts that person, has at least a short conversation with them about why they didn't get the job.
And then the other thing we did was we started sending individuals emails that said look, we're really sorry that you didn't get this job. We really value you being a part of this organization. Here are some other opportunities that you might be interested in based on the job that you applied to. So this kind of gets around to the automation piece. And we tried to play around with a little bit of machine learning algorithms to find out which other jobs would be good fits. And it turns out, we haven't been able to track turnover yet, because we're only three or four months into this, we are finding that people's attitudes are much better.
SPEAKER 2: So a whole bunch of questions have come in actually. So I'm try to sort through them. So one, at least a number of folks have been asking about your ability to sort out were there differences between high performers, or high potential employees and the average employee in terms of their response, or how they would respond to rejection?
JR KELLER: Yes. So this was actually, it was the first thing we looked at. Because you could imagine that a benefit of having these systems is that there are some folks that are getting rejected that maybe it is a signal that you want to send to them that this might not be a good fit, or that they might not have a sense for future advancement. Turns out that there's no difference in the way star performers or top performers react relative to folks who aren't labeled as star performers.
And we did this a bunch of different ways. We looked at performance ratings. We looked at the nine box talent grid, where people fall on these talent grids. We looked at whether they were applying to higher level positions or lower level positions. And in general, these patterns were really similar. And probably the one that was most steady was this, did the hiring manager take the time to interview me.
SPEAKER 2: A couple folks had questions going back, maybe to the earlier part. It might apply here as well. But the concern, particularly that some folks have over the systems and different approaches were, what's the chance for bias to creep in here, particularly through the sponsorship oriented internal labor markets? Isn't there a chance and how do you avoid managers who are hiring just like them, or hiring more people that are like them? So how to use that system, but also not wind up with bias discrimination and so on?
JR KELLER: I think it's a big challenge. And I don't think there's a magic bullet for this. But I think that from the organizations that I've worked with, the big piece is, if you're going to use a sponsorship system and put this in place, then the way to do that is not to just say, hey hiring manager, if you want to sponsor somebody, go ahead and do it. Either you need to talk to somebody from HR and run through this process with them. It's getting a sign-off from another higher level manager. It's something where you have to justify that decision.
It's not going to completely eliminate bias, but it might help. I think one of the big things that can be really helpful is-- so the company that we've been running these experiments with has done something, I think, that has been very effective. And so what they do require is, regardless of whether a hiring manager ends up posting a job or sponsoring somebody, they require an initial conversation with their HR business partner.
Because what that HR business partner often does, because they're working with employees all the time, is they can often say-- hiring manager says, there's somebody I want to sponsor. And what the business partner can say is, all right. I understand that. But you might not be aware of this, but there's a lot of other candidates across this organization that might be of benefit. So it might be able to nudge them, first of all, to just sort of thinking about including more folks.
SPEAKER 2: Good. Another question that's come in is around the-- you mentioned a lot about how the hiring manager plays a role here. And the more that the hiring manager both interviews folks, communicates with them after, certainly improves engagement or motivation to stay. What about the employee's existing manager? So we're you able to study that at all? What's the role of their current manager, whether that's through debriefing afterward, or helping them understand how ready they are. Any thoughts on?
JR KELLER: Yeah. So I don't have a lot of data on this. But a lot of anecdotal stories we've gotten from both employees and managers on this. So there are two big ways that current managers can help support this. And one is essentially being a reality check. So it's an employee talking with their current manager about what opportunities they might want to pursue versus which ones they're more likely to be qualified for. Helping to steer you in the direction of more attainable jobs.
Or if you really want to try something very new, how can I gain some experience in special projects or something to make me more competitive for this in the future? So part of this is expectation setting. And helping to steer folks in the way. And the other piece is that we do see-- so one of the big things that we saw in the survey results is that folks who felt that they had the full support of their current manager were much more likely to say that they were going to stay with the organization, regardless of how they were rejected. So simply having that dialogue and feeling they have a support system in place with their current manager is really important.
SPEAKER 2: So I know we're getting close to time here. But there is another question that came in. And really focusing around the notion that in big companies with this kind of open market posting system, 10, 15, 20, 30 might not be an uncommon number of internal applicants to get. So how do you manage that kind of volume with some of your findings? So if you really want the hiring manager to interview all 30 or all 40, how would they have the time to follow-up with all those folks?
JR KELLER: The big trade-off here is the time. The time intensives you're going up into this. And this is one of the reasons I really wanted to look at a number of outcomes. I think that the biggest thing is being really clear about what the qualifications for the job are. And how those match on. And this is where the artificial intelligence and the technology can help, which is actually-- a lot of your firms probably collect this data on what skills employees have.
But it may be buried in a talent management file somewhere, which isn't linked to the job application data. And being able to funnel people through, or saying, you're going to apply for this-- you're not really qualified for this job. Or sort of setting some sort of expectations to discourage people from applying for jobs that they're not likely to get, which is only going to lead to negative consequences for the organizations and disappointment on behalf of the workers.
SPEAKER 2: So we're bumping up against the end of the half hour. I want to thank JR for taking some time to share his research with us today. Also, I would encourage you all to continue to look on the CAHRS website. So I know that JR has got a couple research links out there on his existing research. There's also upcoming working groups that we have on similar or related topics. So it's great to have you all engaged today. Great questions.
I'm sorry we couldn't get to all of them. In fact, I couldn't keep up with the scrolling questions that were in front of me. So clearly an important topic that's on a lot of people's minds. And I would just encourage you all to continue to stay engaged with the CAHRS website to see future webcasts that are coming up, future working groups you can attend, and certainly, the existing research that's on the website that you can take a look at. So again, JR, thanks for your time today. And thank you all for joining us.
JR KELLER: Thanks for having me.
SPEAKER 1: This has been a production of the ILR School at Cornell University.
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While external hiring can bring many potential benefits to an organization -- acquiring new knowledge, infusing your organization with demographic and thought diversity, and weakening competitors through poaching -- it is also incredibly expensive, and external hires often fail to live up to expectations. As a result, many companies are beginning to prioritize internal hiring and supporting employees who want to move within their organizations. The most recent survey data available on this topic indicate that around half of global companies are committed to investing more resources in internal hiring than they have in the recent past. The challenge lies in making the right decisions to maximize the return on any investments in internal hiring; a challenge made more difficult by the surprising lack of information available around what investments different companies are making and whether or not those investments are paying off in terms of retention, satisfaction, quality of (internal) hire, and company performance.
In this webcast, JR Keller, Assistant Professor, Human Resources, ILR School, Cornell University will look at different approaches to internal hiring, how internal hiring processes shape who advances within organizations, and how to handle unsuccessful internal applications. The webcast will also include time for Professor Keller to take questions from participants.
