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The Critical Role Compensation Plays in Moving Leadership Forward

The pace of change happening in the world around us signifies that past success is not necessarily indicative of future success. The critical skills needed to lead a company a decade ago are simply no longer sufficient in today’s environment. As a result, boards need to redefine leadership — even among their own ranks — to ensure that reward systems can attract and retain the best talent.

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Undergoing this redefinition means boards will have to identify crucial leadership attributes. Those attributes need to be documented, and candidates who meet those criteria need to be sourced — whether internally or externally. Boards must beware of “falling in love” with candidates who have traditional qualities of a good leader (industry experience, a proven track record in leadership roles, confidence, etc.), because far more is needed to lead most companies going forward.

It’s time to rethink leadership and make it more reflective of the employee and customer/client base. Adaptive skills such as listening, cognitive flexibility and a willingness and ability to pivot based on current facts and circumstances are increasingly in demand.

Boards can succeed if they focus on defining the qualities believed to be most important for the long-term success of their company, commit to screening for those attributes, and avoid ignoring “red flags” throughout the process. Diverse boards are more likely to succeed at this process because they have the advantage of evaluating future leaders from multiple perspectives.

When it comes to compensation, it’s not about motivating leadership to do the right thing. It’s about hiring people who will do the right thing and then rewarding them appropriately for the success that will most assuredly follow.

While the best leaders are seldom vocal about their own pay, they intuitively seek a fair reward for their time, effort, and results. The key to developing and designing reward systems that create this kind of alignment with the strategy and vision of the leadership team, is allowing for flexibility during uncharted times. This creates a strong link between pay and performance, something the best leaders seek.

Finding and retaining the right talent requires a shift in approach. Understand who you need and remain vigilant about hiring to that set of criteria.

  1. Update Your Skills Matrix

 

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  1. Hire and Promote According to Your Updated Matrix
  • Assess your current leaders and succession candidates based on your updated matrix.
  • Create a diverse candidate pool when hiring.
  • Promote from within when possible but be willing to go outside the organization to acquire the needed attributes and skills.
  • Find ways to foster talent early by partnering with local organizations to invest in the pipeline of the future.
  1. Design and Deploy Incentive Programs

Create the right programs that will retain and motivate the kind of leaders you want. Here are some specific discussion points for your compensation committee to consider:

  • What are we trying to accomplish? What metrics align with the strategy and vision for the future success and long-term viability of the company?

Many companies and their boards are good at the “what.”

  • How can we best accomplish these objectives? How do we treat our employees, customers, and stakeholders? How do we manage short-term versus long-term priorities? How do we adapt to changing market conditions?

Boards should watch the “how” more closely and frequently to understand how results are achieved and build flexibility into compensation designs to recognize success.

  • When do we want to see results? When will we know that we have been successful?

A clear vision and reasonable expectations of when the board can expect to see progress and results should be communicated to management.

  • Why are we on this path? Why will these programs lead to superior and sustainable performance?

Similar to timing, boards can help enact change with clear communication; demonstrate why it is important to have the right people in the right jobs working to achieve the right goals in the right timeframe.

After you’ve spent so much effort on identifying, hiring and motivating the right leadership talent, retention is often discussed in terms of how difficult or painful you can make it for a leader to leave an organization. Wouldn’t it be better instead to focus on how to make it interesting, exciting and rewarding to stay?

Create milestones, track your progress and celebrate your successes. It’s a journey.

About the Author

Erin Leymann is a principal at Pearl Meyer.


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