-EXECUTIVE HIRING…IMPROVING THEIR RETURN ON YOUR INVESTMENT-
Our last article, “Ensuring That Your Performance And Reward Systems Do Not Do Compensatory Damage”, engendered a great deal of interest and a large number of readers asked us to specifically touch upon our experience and recommendations in the area of executive hiring and compensation. As a result, some thoughts are outlined below. During the last eighteen months executive turnover has become higher than it ever has been in history, throughout nearly all developed nations. For our purposes, “executive” is defined as employees with base compensation in excess of $150,000 or its equivalent.
2000 was the best year in history for executive search firms in the United States, the United Kingdom, Europe and Latin America, and 2001 showed little abatement. According to our contacts in the U.S. and international executive search communities approximately 50% of that activity has resulted from voluntary executive departures, approximately 30% of that activity has resulted from involuntary executive departures, and approximately 20% of that activity has resulted from newly established executive positions. At the same time senior executive total compensation has, in general terms, climbed substantially in comparison to other employee populations. From a business perspective, despite varying opinions on the subject, that is neither good nor bad. It has, however, contributed to the likelihood of executive departures as the economy turns around.
Company performance is more heavily impacted by the quality of leadership throughout a company than it ever will be by how much “underpaid” or “overpaid” its leaders are. Whether an executive is “underpaid” or “overpaid” is in no way tied to the quality of his or her leadership skills. Paying a leader an excess amount will not make him or her a more effective leader, or improve the financial and competitive results of the organization. Additionally, in all cases where executive and employee compensation is directly tied to organizational results, “underpaid” or “overpaid” is immaterial because the pay is directly caused by the organization’s results. Concerns about excess executive pay seem to occur largely within organizations where pay is not tied directly to traceable organizational results specifically created by the executive, exclusive of the broad market.
The best leaders, those who create or enable positive results most effectively, do so without excess concern about how much they are paid. They have other things on their mind and that will become more evident as you continue reading this article. Coincidentally, we have found that they also spend more time concerned about how effectively their team is being rewarded and whether that reward system is supporting the business results that the leader envisions. That concern, specifically, is what creates reward system alignment within organizations. It is also much of what makes successful organizations effective.
From a psychological standpoint, money tends to be an exclusive interest for those who are consumed by it. Said another way, those who are consumed by money tend to be quite disinterested in most or all other interests, to the detriment of the organization. We say that because money is inanimate. Organizational results occur because of animate relationships and interactions, the most important of which is that which occurs with and among customers and employees. If the picture is emerging in your mind that excess personal focus on compensation results in diminished animate relationship skills and hence, leadership abilities, you are correct. More important, we have found the following to be true after nearly four years of research:
The degree to which an executive’s total compensation is directly, proportionally and immutably tied to all expected organizational results (revenue, profitability, return on investment, customer retention, market share, shareholder value, customer acquisition and retention, employee opinions and productivity, earnings per share, EVA, etc.) is directly proportional to organizational results and inversely proportional to leadership shortcomings and executive turnover, whether voluntary or involuntary. Largely or completely ineffective executives and leaders have no interest in being paid according to the entirety of the first eight lines of this paragraph. The best executives, those who contribute the most while enabling the greatest level of organizational performance, demand to be paid according to the first eight lines of this paragraph. Those who do not demand so are simply not the most effective executives available for your organization. One of the first questions most of our clients ask executives being considered for employment with their organizations is, “Could you give me very specific details of how you feel you should be compensated?” To our clients, that is a pass/fail question.
We have summarily raised the subject of compensation within this article because it tends to have a monumental effect on the capability set that executives bring to the table. The compensation requests of your candidates for executive positions largely indicate their capacities as effective leaders. Some of the other attributes of the executives who will contribute the most to your organization, when you are looking to hire them, tend to be:
They are driven to compete exclusively against current and future direct and indirect competitors of your organization. Under no circumstances do they engender or allow internal competition for recognition, rewards, trips, or special treatment. There is no east region versus west region. The entire team vents all competitive force externally.
- They never allow “busy-ness” to derail or slow forward progress. In their mind, being “busy” is a sign of inefficiency. They also believe that “now” precludes “never”.
- Their cellular telephone bills are excessively low because they have mastered the skill of delegation and because they build relationships through many other more effective means.
- They dress like the people with whom they are interacting so that interaction can, in fact, occur.
- They spend substantial time “in the trenches” and “out in the field” in order to retain an informed operationally focused strategic mindset.
- They are more interested in the organization’s goals and rewards other than stock options than they are in the stock options themselves.
- They have an acute ability to see through and correct the political endeavors of their direct reports and the direct reports to those individuals.
- They laugh and smile a great deal and that is much of what draws people to them as “followers.”
- They are equally outstanding at both strategy development and tactical implementation. The best strategies are those that are derived by people with implementation abilities. Executives who are very good at implementation tend to be exceptionally good at creating human alignment and eliminating human conflict during both strategy determination and implementation.
- They have no intention of immediately “bringing in their own team” after being hired because they clearly understand that leadership means having the ability to lead and quickly develop, with very positive results, at least 90% of any employee population they inherit regardless of the population’s shortcomings. They NEVER bring other employees and executives with them from their former employer within 6 months of taking a new executive position.
- They embrace the fact that their new company is entirely different from their prior organization. As a result, they resist all urges to bring anything from their old organization (staff, philosophies, cultures, etc.) with them into their new organization.
- They tend to display no narcissistic tendencies whatsoever.
- They answer their own telephone frequently, proving that they prefer not to construct communication and relationship barriers.
- They take all steps necessary to remove “politics” from the workplace, thus engendering a culture whereby performance and contribution alone control individual success.
Assuming your total compensation offer to them is competitive and reflects their prior results, proven capabilities and expected contribution, they spend no time whatsoever attempting to negotiate individual compensation program attributes (number of vacation weeks, target incentive, travel benefits, company car model, stock options, base salary, spousal benefits, etc.). Individuals who attempt to endlessly negotiate individual compensation package attributes tend to lack strategic foresight while being internally focused instead of organizationally focused.
The key challenge is for your organization to have the best possible leaders. Each of the above thirteen points is very easy to assess during the selection and hiring process, with 100% accuracy. By utilizing these guidelines along with reference and background checks, psychometric assessments and multiple interviews when hiring executives, many of our large and smaller clients have found that their organizational results and executive contributions have, not coincidentally, improved both dramatically and immediately.
Please Contact us or call us at 1-480-467-0344 (USA) and we would be pleased to discuss, clarify or expand on any of the above points.
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