Succession Planning and Leadership Development

To function in the long run, public policy think tanks must acquire highly-qualified leaders. As founders age, or senior managers leave the organization, the need to transfer leadership responsibility may become urgent. Moreover, new leaders bring fresh ideas and a variety of experience that can aid in expanding and strengthening the organization.

A loss of leadership will result in a stagnant or waning organization, yet many organizations are unprepared for the possibility that their top leader may become ill or disabled. A related problem is inadequate secondary management; leadership may be willing to delegate but lacks confidence that subordinates can handle the work. Similarly, if an organization has grown beyond the capabilities of its managers, further growth is jeopardized and new opportunities will languish unexploited.

An organization’s ability to produce results derives from its leadership and staff–its sole productive asset. The only way to improve the “product” of such an organization is by improving the quality of the employees, and the most essential employees are those who manage the organization. The better our employees are, and the more of them we have, the more output the organization can generate.

Research has demonstrated that there are enormous differences in the productive output of employees, and it is clear that high-quality (and highly-compensated) employees generate far more output per payroll dollar than average employees. Good employees are 50% more productive than average employees. Top employees are at least 2¼ times more productive than average (Hunter, Schmidt & Judiesch, 1990, Journal of Applied Psychology, among others).

Excellent Employees

The salary earned by an individual generally increases over time as they learn and gain experience; how far and how fast is a function, according to recent research, of general mental ability and conscientiousness (Schmidt & Hunter, 2004, Journal of Personality and Social Psychology). Individuals who posses these characteristics in abundance will be top performing employees who can learn quickly, function independently, and maximize output.

Unfortunately, many organizations approach compensation from what might be called a “budget” perspective, where salaries are determined by what fits the budget rather then what must be spent to acquire an excellent employee. Arbitrarily limiting salaries creates a “natural selection of the unfit” where potential employees who are both excellent and experienced are too expensive for the organization to hire and current employees who are excellent will–once they gain experience–leave to earn a better living elsewhere. Only below-average employees will stay, since they have nowhere better to go.

Some individuals will accept lower pay in exchange for a more desirable or satisfying position–such as working for a think tank. The difference between what an individual could earn elsewhere and what they are willing to accept as a think tank employee has been referred to (by Larry Reed) as the “missionary discount.” Missionary discount notwithstanding, lower-paying organizations will lose good employees to those that pay better; many charitable and educational groups pay higher salaries than think tanks; and, as the employee’s financial needs and the salary discrepancy increase, the employee’s willingness to work for less may vanish (followed soon after by the employee).

Show me the money

Hiring and retaining excellent employees capable of becoming tomorrow’s leaders requires a financial investment. Where will the cash for this investment come from?

Spending less on current programs and cutting some of your least essential programs will free up cash for investing in leadership. These programs may be restored once revenue growth and improved efficiency are achieved. The organization should perform a cost/benefit analysis for each program and those whose benefit is less significant than the survival of the organization are candidates for reduction or elimination.

Consider asking donors to provide a “leadership development” grant that covers the cost of hiring a well-qualified leader. This requires a well-researched plan that itemizes the costs and the anticipated future benefits. Borrowing the money is an option too, particularly if it will be used to hire a fundraiser.

Solutions

Investing in excellent current employees is accomplished with direct monetary incentives and through leadership development. Salary and bonus are monetary incentives and excellent employees should be paid above-average salaries accompanied by generous opportunities to earn bonus tied to goal attainment. (For more on structuring bonus plans, see: Kaplan, Robert S.: “Strategic performance measurements and management in nonprofit organizations;” Nonprofit Management and Leadership, 11(3):353-370, Spring 2001; and “The Balanced Scorecard and Nonprofit Organizations;” Balanced Scorecard Report, December 2002, pp 1-4.)

Leadership development has an internal and an external component. Capable employees become leaders through practice and experience. Provide them with a specific project, set measurable goals, provide resources, and then get lost. Mentoring develops skills; micro-management does not. Practice must be supplemented by external training, the most important of which is formal training in an MBA program. Managers must be able to perform statistical analysis, manage information, construct and evaluate marketing plans, read accounting statements, and manage finances. Providing managers with employer-paid access to MBA courses will probably benefit the organization more than any other leadership development effort.

Investing in new employees is a constant requirement for growing organizations. Under-performing employees should be let go and replaced with high-performing, well-paid employees. The payroll will grow, but–due to the higher quality of employees–output and revenue will grow more.

Another Issue: Founder Flounder

Organization founders sometimes find it difficult to let go. One option is for the Board to create new positions and specify exact job responsibilities: the founder becomes President with a fundraising, PR, or research role, but no direct reports, and an Executive Director is hired to run organization.

Sometimes questions arise over compensating the founder in a new role, but there is a straightforward solution. Quantify the value of the founder’s contribution (aka: marginal contribution) by estimating what would be lost if the founder left. Place a dollar figure on this contribution, or estimate the cost to replace the founder. Compensation should be no more than the marginal contribution; or, if you prefer formulas: compensation <= marginal contribution.

Michael G Smith

Filed under Making job offers, Recruiting, Staffing in General |