The Quit Upwards Paradox
Ian Hellström | 13 February 2020 | 7 min read
There can be many reasons why employees quit. Many people leave for jobs with better remuneration at other companies, yet the companies they leave behind hire people who do the same. Therein lies a paradox: why are fewer people promoted than hired from outside, especially since those who quit obtain pay rises significantly larger than those who stay at the same company?
In terms of career progression and/or salary, when employees quit they have three options: upwards, downwards, or sideways. Except in toxic environments and rare cases, such as a complete career switch, people usually leave for pastures of at least comparable viridesence. In fact, they generally quit upwards:
The average increase in compensation for a worker who quits one job for another is about 15 percent[.]
That leaves us with a quandary: there are open positions above the individuals who quit, yet they leave to advance their careers. What gives?
The naive explanation is that there’s plenty of room at the bottom, to reuse a line from Richard Feynman’s 1959 lecture on the possibilities of nanotechnology. There are more people at the base of the corporate pyramid than there are people near the top. So, if an employee leaves for a better job at another company, the position that needs to be filled is generally closer to the bottom, and said roles can be filled more easily.
But that does not explain why no one from the company’s own base is being promoted, especially since the cost of employee turnover can reach up to twice the annual salary; a bad hire is even worse. Since it takes about two months to fill any tech position, that seems like a fairly high cost and a considerable risk for any company to choose. Companies may dismiss the risk because they believe to be better at hiring than everyone else, but so do many others; this is a manifestation of the Dunning-Kruger effect. The bad apples did end up in someone’s barrel before applying for a role elsewhere, and each company has such bad apples too.
To explore possible ways out of the paradox, I shall adopt different perspectives.
People who quit may prefer to be big fish in small ponds, rather than vice versa. This naive notion glosses over the fact that people quit upwards both ways: from and to large companies.
Perhaps it has to do with risk aversion. When you shop around and do not commit immediately, you know your market value better and you know what’s on offer elsewhere. This means you can often be more discerning in your choices, or use that to your advantage at your current place of employment. Still, you may be less inclined to take risks at your own employer because of possible damage to your reputation. If you ask for a 10% increase, you may come across as out of touch with reality and be labelled as such for the rest of your tenure. Interviewing with another company, you may consider that less an issue: if they think you’re not worth the additional money, the process is terminated. No harm done. If they do think you are worth the extra cash you requested, you may continue with the process and see whether a switch is really worth it. But risk aversion cannot explain it altogether, because there is a not insignificant risk involved in trading one company for another. Better the devil you know, and all that.
A lack of challenging assignments can be a reason for individuals quitting. That does not explain why those people manage to secure raises that far exceed the star employees’ they leave behind.
Could it be a problem of perception? If company insiders believe there is a ceiling to their career, they may not want to push for a promotion. Opportunities within their own teams may be a lot less plentiful, but it’s doubtful the majority of people who end up quitting upwards are oblivious to any opportunity beyond the confines of their own direct environments. After all, they do know how to navigate external job boards, so why would they not know about internal ones?
There is some evidence to suggest that perception plays a role, or rather what you imagine other people’s perception of you might be. The harsh reality is that people rarely think about other people. The sense of measuring up to a peer group—real or imagined, based on such inane characteristics as having grown up on the same street, for example—or the expectation of career progress at certain life milestones is why job search activity increases after reunions and birthdays that celebrate multiples of ten.
It has often been said that people quit managers, particularly bad ones. If people quit because the ‘wrong’ person was promoted or they feel disrespected, the evidence in favour of perception is stacking up. It’s very improbable for 75% of employees to believe middle management to be inept when that’s not the case. From personal experience, there is indeed a lot of cluelessness in the middle layers of organizations. Is it any wonder though, since more than half of managers report to have never received any relevant training?
Is it possible that people exploit the cluelessness of middle management to obtain raises by quitting upwards beyond what top performers can gain by staying on? That would indicate people who quit are more cunning, and it’s doubtful that could work on such a scale without anyone noticing or putting a halt to it.
When people quit because of inept managers, it might be they are optimists and hope they’ll encounter more competent leadership elsewhere. This is essentially the grass-is-greener delusion. As I have often said, hope is not a strategy. Still I do not believe people to be that naive, at least not en masse.
Perhaps, professional hysteresis plays a role, that is, your history with a certain company. How you feel about something often depends not only on where you are in your career but also how you got there. To mix a proverb and an idiom, if spilt milk does not turn into water under the bridge, people may be eyeing the exit or at least bear grudges that stand in the way of career progression in the same organization. For instance, if employees have pushed for various initiatives but they were stymied every time, they may become disenfranchised. There may have been valid reasons for not proceeding with their ideas, but it may very well be or look like political chicanery rather than sensible business decisions to those involved. After all, more than two-thirds of workers do feel disengaged.
A fresh perspective is often beneficial. But not every person hired from the outside is a breath of fresh air and I am sure companies are aware of that fact. This is the reverse Groucho Marx effect, which states that companies prefer people who are not yet members of their own organization.
While it is at best a partial explanation, companies do tend to value outside perspectives more. Take a look at technical or management consultants who often rake in significantly more than regular employees of the same rank and experience. As they come into contact with many companies, they have different views and do not walk around with corporate blinders on. Or so the idea goes. Whether the assumption of objectivity is correct is unknown. I do know from personal experience that consultancies often peddle their own canned software and services or solutions from preferred vendors, leading to a lot of square pegs smushed into round holes. Overall it makes me question their alleged impartiality.
It’s equally dubious that companies prefer to bring in outsiders, lest they have to deal with insiders’ bruised egos. After all, if there was a vacancy for which you applied, it does not make much of a difference whether a colleague or an outsider got the job. You did not. It would also show a reluctance of management to handle unpleasant situations. While that may be true in individual cases, it’s not a generally satisfactory resolution to the paradox.
Due to low unemployment, people may be able to hop between jobs more frequently and with greater ease. That gives them the power to quit while getting a raise. Then again, it’s not easier to land a higher position elsewhere than a secure a promotion. At least, it should not be.
Another possibility is that more jobs are added, so means people can move into positions that did not exist before and get paid more at the same time. In the United States in recent years, jobs have indeed been created at a faster pace than people entered the workforce. Whether that’s sufficient an explanation remains to be seen.
It’s obvious I do not have the answers. Research is needed to understand the origins of the paradox and its resolution. And even then I suspect there is a combination of factors at play.
Every company believes it hires great or even the best people, but statistically that is impossible: not everyone can be above average. The money spent on hiring outside talent might be spent better on onboarding and developing those already present. Good onboarding programmes can in fact reduce employee churn, although more than a third of companies spend no money at all on onboarding employees. Employees leaving within the first six months is extremely common and costly. Why spend several thousand dollars on hiring outsiders when you neglect your own people who then quit and leave another position to be filled in turn?
Improving management ought to be mentioned too. Employees feel that two-thirds of managers lack proper training. The same article mentions a report that claims that 75% of employees are more productive from home than at work. Maybe management’s drive to create open, collaborative spaces with no assigned desks and noise everywhere are not as beneficial as they believe. Well, they probably do it, but it’s cheaper. In fact, open-space offices are even sexist.
Save the money you would have spent on hiring outsiders, spend it on training and retaining employees, and promote the best ones while offering sufficient eduction and support. That does not mean companies should become silos in which employees spend their entire careers. Career mobility is important for employees, companies, and as such the economy.