Retaining Top Talent and Creating a Strategic Succession Plan
by Dan Parry and Rob Mason of FutureSense, Inc.
Executives, managers, and HR professionals all dread walking into the office to find that one of their top employees has decided to leave the company. Worse yet is the knowledge that there are no internal candidates in the talent pipeline to replace them, thus leading to the distasteful “timely and costly external search.” Best-in-class organizations prepare for these situations by implementing creative programs to retain top talent and by crafting a clearly articulated plan of action to address succession.
Now More than Ever
According to the Bureau of Labor Statistics the voluntary unemployment rate is at its highest level since November 2001 and productivity gains of the past two years have not been matched by equal salary increases.1 A 2004 study by Hewitt Associates identified “retaining key talent/skills” and “succession planning” as the two most important workforce planning issues; however, several studies suggest that only 30–45% of companies have a succession plan in place for the CEO.2Today’s environment calls for rigorous, strategic succession plans with a clear relationship to long-term goals. Similarly, a retention strategy is much more than simply striving to decrease the “turnover percent” that is calculated in the HR annual report. True retention strategy involves identifying top talent and creating attractive career paths to retain these employees.
Organizations that thrive at identifying and retaining top-tier talent are rewarded with a strong, diverse pool of qualified internal candidates ready (and capable) to step up when executive positions are vacated. By executing the necessary due diligence of retention strategies, organizations gain the luxury of appointing the candidate that best fits the current and future strategic direction of the company. The first step is identifying the skills, leadership traits, and performance assessment tools that are the most valuable to your organization. Then, with a clear criteria in place, the important work can begin.
Employee assessment and identification is crucial. Each department must mark its top talent and “high potentials.” Although this is an iterative process, it is important to start cultivating employees in their first year. Identification of talent is a company-wide necessity and to ensure continuity and effectiveness, the process should be driven by a leadership development committee headed up by the CEO and HR leader. Following appraisals, top-tier employees from all levels should enter into a constant cycle of training, coaching, and mentoring in order to lead to promotions.
In one study it was estimated that top-tier employees are four times more likely to leave their jobs.3 In instances where a lack of succession events causes a lack of opportunity for high potential employees, new responsibilities need to be added to create new challenges and learning opportunities. The goal is to reduce the number of top tier employees lost as a result of being under-challenged, under-compensated, and under-trained.
What concrete steps can be taken to keep these employees? A recent strategy involves linking the compensation of executives and managers to their retention of top talent. Though the supervisor employee relationship is thought to be the most powerful tool in retaining top talent, only an estimated one in ten companies practice this today.4
Another useful method of retaining top talent at lower levels is to increase interaction between top executives and young top talent. At one best-in-class Fortune 500 Company, if a top performing employee at any level has decided to leave, the CEO, COO, and senior VP of HR contact the employee immediately in an attempt to make a counter-offer.5
One of the most basic yet often overlooked components of retention is coming to learn your “employer value proposition” in the employer-employee relationship. Knowing why people choose your company over others in the interview process and why they stay can help identify your value-proposition to your employees. One company may pay top dollar and offer great retirement benefits while another may offer an attractive work-life balance along with a pleasant corporate culture. Identifying your company’s strengths and value to current employees will help ensure retention of top talent.
By encouraging on-the-job learning, companies show that they are willing to invest time and energy into the career development of their employees, thus solidifying the bond between employee and organization. Further promotions and succession events will help to retain the top employees as they are challenged professionally and compensated for their success. According to a study of employee satisfaction by the Center of Organizational Effectiveness at the Marshall School of Business, top tier employees are committed to companies that create “strong mentoring relationships and challenging work assignments.” Retaining this top talent will lead to a rich pipeline of candidates for successions and promotions.
Start From the Top: CEO Succession Planning
Given that the average CEO takes the helm between the ages of 46 and 52 it is not unreasonable to start developing potential CEO candidates at 30 years old.6Consequently, building a successful succession plan is heavily reliant on the retention process described above. Since the inception of the new Sarbanes-Oxley legislation in 2002 succession planning has taken a backseat to accounting issues with many executives and Boards. Looking forward, the leaders of these companies need to make succession planning a paramount focus, starting from the top with an effective CEO succession plan. Average CEO tenures have dropped from 11.4 years in 1995 to 7.6 years in 2005, and two-fifths of new CEOs are replaced within their first 18 months.7
The succession plan for a CEO must be definitive yet malleable—working in concert with the evolving strategy of the company. When a CEO leaves, companies too often seek the same type of leader. A succeeding CEO should be well equipped with the skills necessary to lead the company to its desired future market position. If no internal candidates exist, a clearly defined strategy should be in place in to retain an external executive recruiter. It is up to the board and owners to propel the search by providing a clear, concise description that focuses primarily on career experience and measurable results.
One of the most successful (yet tragic) CEO succession plan implementations in recent history occurred at McDonald’s Corporation. In early 2004 then CEO Jim Cantalupo had begun to steer the strategic direction of the company towards more healthy offerings in the face of harsh criticism from public health officials. In April, Cantalupo died suddenly while attending an employee convention in Orlando. Within hours then President and COO Charlie Bell was appointed CEO by the Board of Directors. A day later, Bell gave the same keynote address that Cantalupo was scheduled to deliver at the convention. Just seven months later, when Bell resigned from his post due to health problems, the Board did not hesitate in appointing Vice Chairman James Skinner to CEO and promoting Michael Roberts to president and COO, making him next in line for the CEO position. In another seamless transition Skinner and Roberts continued to carry out the strategic initiatives that Cantalupo and Bell had championed. This was a remarkable feat, considering that most companies are not prepared to replace one CEO, let alone a second only seven months later. Companies should strive to have a plan in place where several qualified, prepared successors exist internally.
Trickle Down Succession: Executives and Managers
With a CEO succession plan in place, companies need to be prepared for the domino effect that ensues as a result of an internal promotion. If the President/COO succeeds an outgoing CEO, the CEO must be replaced, and so on. One of Jack Welch’s greatest successes at GE was that he always had a hand-picked successor each time he was promoted.8 Welch excelled at cultivating talented individuals into successful leaders and managers, ensuring that his department would perform just as well (or better) when he left. As executives and managers put more energy and resources into retaining and training their top talent, they will find it easier to promote from within when they are called up to a higher position.
One of the most basic yet necessary resources that every company should utilize in succession planning is a “leadership succession roadmap” that captures data on all executives in the company. Data for the dashboard must include past experiences, strengths and weaknesses, potential future promotions, and career goals. The dashboard should be populated by a combination of supervisors, employees, and HR officers. With the click of a button the HR leader and the CEO should be able to do a “leadership gap analysis” to determine how many potential internal candidates exist for each executive position within the next 0–1 years, 1–3 years, 3–5 years, 5–10 years, etc. Adding a rigorous data capturing element to the succession planning process will help determine where gaps may exist in the leadership development of the organization. With this knowledge, emphasis can be placed on both developing more internal candidates to fill gaps and looking externally for potential leaders.
Over the next ten years the battle for top-talent in all industries and geographies will intensify. The companies that are able to better retain there “high potentials” will be better equipped with the personnel needed when a succession event does occur. With clearly laid out succession plans in place these seamless transitions will be the norm as less time and money will be lost in searching for potential replacement candidates. The “people strategy” of these best-in-class companies will pave the way for strong financial gains as the right minds will be in place to form a winning business strategy and the right rising stars will be in place to carry out that strategy.
1 Bureau of Labor Statistics. “Job Openings and Labor Turnover Survey,” (February 2006).
2 Hewitt Associates. “Preparing for the Workforce of Tomorrow,” (February 2004).
3 Finegold, D. and S.A. Mohrman. “What Do Employees Really Want? The Perception vs. The Reality,” USC, Marshall School of Business, The Center for Effective Organizations. (2001), Paper presented at the annual meeting of the World Economic Forum, Davos, Switzerland.
4 Monster Intelligence. “Retention Strategies for 2006 and Beyond,” (February 2006), .
5 Charan, Ram. “Ending the CEO Succession Crisis,” Harvard Business Review, vol. 83, issue 2, (February 2005), 80.
6 Charan, 75.
7 Lucier, Chuck, Rob Schuyt, and Edward Tse. “The World’s Most Prominent Temp Workers,” Booz Allen Hamilton, 8.
8 Charan, 75.