Read Jeffrey Pfeffer's The Human Equation: Building Profits by Putting People First (Harvard Business School Press). It presents a cogent argument, with lots of examples, in favor of building a great company by rewarding your people. Chapter 5 ("Ten Reasons Why Smart Organizations Sometimes Do Dumb Things") specifically looks at the argument for promoting from within.
Actuarial Careers Inc., (914) 285-5100, email@example.com
Evolutionary Technologies International Inc., (512) 327-6994, http://www.eti.com
Exec-U-Net, (203) 851-5180, http://www.execunet.com