Many companies opt to promote employees internally as a way to invest in their workforce and enhance employee retention rates. However, this strategy can have unintended consequences, as employees with more impressive job titles and responsibilities may become more attractive to external employers. A recent study by Hardy et al. (2025) examined the retention rates of internally promoted managers versus externally hired managers.
Internal Promotion vs. External Recruitment
The study analyzed over 11,000 restaurant managers during the COVID-19 pandemic, a period marked by a shift from a weak labor market to a historically strong one, also known as the ‘great resignation’. The research found that externally hired managers were nearly four times more likely to leave their positions voluntarily compared to internally promoted managers in this new robust labor market.
In a subsequent experiment, participants were asked to envision themselves being promoted internally or hired externally as restaurant managers. When faced with a simulated economic crisis followed by a strong labor market akin to COVID-19, external managers were more inclined to leave their roles given the opportunity.
The findings revealed that external hires were more concerned about job security and perceived lower levels of organizational support compared to internally promoted managers.
Practical Implications
Internal promotions can be a valuable retention strategy for organizations, as they signal to employees that the company values their growth and development. It is essential for companies to invest in their employees’ professional advancement and create opportunities for career progression.
Moreover, organizations should be mindful of the potential turnover risk associated with externally hired managers, especially during favorable market conditions. Companies must strike a balance between hiring external talent and promoting internal candidates while providing adequate support to all employees.
Hardy, JH III, Thiel, CE, Gibson, C., Klotz, AC, & Barsa, A. (2025). After shocks: the effects of internal hiring on voluntary turnover. Journal of Applied Psychology, Advance Online Publication.
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