Why don't companies pay employees more for internal promotions?

Question

It's so interesting to me that new external hires get paid so much upon coming into a senior level, whereas existing employees receive a much smaller pay bump for a promotion to the same level. Isn't it worth it to invest more in your employees who have more context and are more developed to the tune of your company by now. Wondering if it's a misstep by companies that ends up in high churn. In the extreme cases, I've even seen employees quit and go to another company just to come back with a new (much higher) offer to their original employer.

jinyung2 · Accepted Answer

I think it might also be worth noting if you are in an enterprise role and the work you do is extremely narrowly scoped, and you just might not have developed the skills necessary at the next level. Compared to the external hire who might be coming from a company or role where they had far more responsibility and breadth of tasks, the internal promotion might not make as much sense.

ChowChow · Answer

This is an interesting and sad phenomenon. I am curious about the actual reason as well.
Here are my thoughts. I think there's a certain comfort to internal mobility because you know the company and its business well, so it's a lot less work to move up in a company than to go to a new company and relearn the company and how it runs.

19g617kx0o5dz0 · Answer

I am also curious as to why this is. I've never understood why some companies are happy they can get an employ for cheap. It's like you really expect the same quality of output and happiness once they find out they are making way less than peers.

19g615kvh6apd2 · Answer

I think you can view it in two ways:
1. Changing job takes time and effort, so even the internal promoted people are paid below market rate, companies don't necessarily lose people. You can tune salary formula based on attrition and market rate data. 
2. External hires go through a lot of scrutiny and usually are required to have quite some experience. Whereas internal promotion can sometimes be easier and also doesn't have to be very good at all aspects.

Why don't companies pay employees more for internal promotions?

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