For everyone that has applied for a promotion at their company only to be passed over for someone from the “outside”, this is a painful topic. To know that an outsider would make more than an insider and still perform worse than the insider is a hard pill to swallow. A recent study also shows that outsiders are much more likely to throw in the towel sooner and leave the company of their own volition.

It’s not hard to decipher why an insider would out perform an outsider.

- More insider knowledge and more experience with the way the Company works is a definite advantage.

- Insiders are also likely to have more loyalty to the Company as they have invested more time and effort than any newbie could.

- An insider employee has also had significantly more time to think of improvements and changes that they would have had the power to implement if they were promoted.

So why are they paid more?

- There is always excitement about something “new” and potentially better. It’s why an internet start-up could have a higher valuation than General Electric which is one of the largest and most stable companies on the planet. We know GE is amazing but this start-up “could be” amazing too. Could be is what brings excitement.

- A great analogy comes from sports. Joe Paterno, now deceased, was one of the lowest paid coaches in college football. He had also coached at the same school for 46 years, which is unheard of in sports. Coaches that change schools frequently are paid in the millions vs. Joe who was paid in the low 6 figures.

So what do you do about it? Every situation is different and not all companies pass over their internal talent for outside talent. Make sure you have an objective understanding of the culture at your company and use that to determine your next move. If you have a fair shot at internal promotion, by all means stay and take advantage of your experience and knowledge at the company to move ahead in your career. If you feel the opposite is true, you need to start looking at other opportunities and take your career progression into your own hands. Hopefully you too can create excitement about what you will bring to a new employer.