How Your Board of Directors Can Prepare for Executive Turnover - Boardroom News & Insights

How Your Board of Directors Can Prepare for Executive Turnover

In recent years, boards have experienced an increase in what many call the “sudden voluntary departure” of their C-suite executives.

In fact, well over half of boards expect it to happen in their company within the next two years. 

Unfortunately, these departures can devastate a corporation and its long-term growth. Because most plans are made with the current executive team in mind, losing even one key individual can push those plans off track.

Furthermore, it’s not just the departure of current C-suite executives that puts companies at risk. It is also the potential of the leaders just a few levels under them to derail succession plans by jumping ship. 

What does this all mean? Essentially, it’s time for companies that work hard to attract top talent to start thinking about what needs to be done to retain it as well.

Change Your Approach to Succession Planning

Companies that find it difficult to keep C-suite executives and lower-level leaders in their seats may need to seriously consider a change in their approach to succession planning.

These days, it isn’t enough to simply think about the next move. Boards need to stay three or four moves ahead if they truly want to reduce turnover and its negative impact on the company.

For most boards, this means gaining insight into the entire pipeline. Every director needs to understand how far each potential candidate is away from a C-suite position and the skills and experience they need to get there.

The next step is to devise a plan to ensure those leaders have opportunities for career development. 

Additionally, boards must work to understand the risk factors for executive turnover and what they can do about them.

Understand Fair Pay and Retention Awards

The board of directors is obligated to work in the best interests of the business. Though shareholders are important, boards must ensure that company success comes first. As a result, they need to allow their companies to do what is necessary to retain key executives. If they don’t, the resulting executive turnover may make it much more challenging to create long-term value for shareholders.

For many companies, this means evaluating — and sometimes raising — executive compensation structures. Executive pay must be both fair and realizable. 

While the use of special one-time awards is on the rise, this cannot act as a long-term strategy. Instead, boards must find viable ways to permanently adjust compensation packages so executives see them as a reason to stay — not a reason to go looking for a leadership position elsewhere.

Shift Leadership Culture

Though compensation and monetary incentives are important, it’s vital for boards to realize that these are not enough. While C-suite executives can and do leave companies for more money, many of them cite cultural reasons for their departures as well.

In fact, culture is even more of a factor in C-suite retention plans than at any other level of the organization. For this reason, boards need to consider cultural targets when building their compensation plans.

Depending on the current company culture and the values of C-suite executives, some of those targets may include:

  • Voice of employees
  • Management diversity
  • Ethics and values breaches
  • Employee experience
  • Non-hire candidate feedback

While shifting company culture requires a great deal of focus and care, it can be key in retaining executive talent — especially for those who aren’t just “in it for the money.” 

Create Viable Pathways to Executive Career Advancement

Executives are where they are in their careers because they thrive on challenges. However, many boards don’t realize that those at the top who have achieved so much still need growth opportunities. As a result, they don’t value creating them. However, this is proving to be a detrimental line of thinking for directors.

Part of staying three to four moves ahead in your succession planning is looking into how long your executives have been in the same role. If it’s been too long since an executive has made a pivot, it may be time to get your chief human resources officer to help you create an advancement plan.

This plan should identify leadership development needs for both current key leaders and the ones coming behind them. Doing so can make all the difference in keeping them long enough to help them realize their potential and use their skills to benefit the business.

Use Predictive Analytics for a Deeper Look Into Turnover Risk

As boards look for ways to create better succession planning processes, it’s important that they learn how to quantify risk departure. Many have a good handle on it in the C-suite, but doing so for executives two or three levels below can be difficult. Most rely on CEO feedback, but circumstances have proven that’s not enough.

Predictive analytics focused on executive compensation can be a huge help. With that in mind:

  1. Look at what percentage of leaders’ total compensation is made up of long-term incentive grants.
  2. Notice how your company’s total direct compensation ranks with peers in the market.
  3. Use these two factors to assess how vulnerable people might be to departure.

This process will require you to evaluate the strength of your leaders’ talent, performance, and experience. Use this information to assess how critical they are to your succession plan. If you ultimately decide you want to keep them, you may need to consider some serious adjustments.

Traditional Succession Planning Needs a Serious Overhaul

As C-suite executives continue to depart in record numbers, it’s clear that many board succession plans need to be reconsidered. Instead of simply thinking about your next move, it’s important to stay three or four steps ahead of the game. This is done by looking at those who currently sit at least two levels below your current leadership and evaluating both their departure risk and their leadership development needs.

Doing things this way can be a challenge. You may have to involve other leaders in the company to come up with a collective plan to turn things around. However, there’s little doubt it will be worth it in the end, as your company will be able to enjoy long-term stability and likely greater profitability as a result. 

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