04/03/2012 11:40 am ET Updated Apr 03, 2012

External Hires Perform Worse While Costing Company More: Study

Companies in search of high-performing workers shouldn't look much further than their own offices, according to new research.

Workers hired from outside an organization get higher positions, receive about 18 percent more in compensation, but perform worse than those promoted from within a company, according to a study recently published in the Administrative Science Quarterly. The paper found that external hires take two years to reach the job performance level of those simply promoted from within a company.

External hires tend to have more experience and a stronger educational background than their internal counterparts -- explaining their higher pay scales, the study found. (h/t Time Magazine)

The findings come as companies are increasingly looking outside their walls to find workers, rather than promoting employees from within their own organizations. According to a survey conducted by talent consultancy CareerXroads, companies that participated in the poll hired 41 percent of their employees internally in 2011, down from 50 percent the year before.

Though external hires tend to get paid more across multiple industries, according to the study, the financial sector is especially well known for using high pay as a way to draw talent from rival companies. In one of the most infamous cases, Merrill Lynch hired its former CEO John Thain from the New York Stock Exchange by offering him an $83 million pay package making him the highest-paid CEO in American business in 2007, according to Market Watch.

With that being said, all internal movers aren't created equal. The study found that the relationship between how an individual enters a job and subsequent performance has a lot to do with whether the candidate has the skill set specific to the position --- which can vary a great deal within an organization, too. For example, internal hires that transferred to a different group within a company did not perform better than external hires, the research found.