Linking Rewards and Recognition With Succession Management
Paul Britton

Succession management has three core aspects:

1. Governance Issues - to ensure the smooth transfer of senior decision-making authority. In Canada, the TSE views this as critical for protecting shareholders' interests and its guidelines on governance suggest all listed companies have a succession planning process for their top positions.

2. Operational Issues - to ensure the future leadership across the organization. Recent studies on organizational health show a positive correlation between the comprehensiveness of an organization's development efforts on "soft" leadership skills and the degree to which it succeeds on hard financial measures.

3. Individual Issues - to ensure the people with the leadership and high potential leadership talent needed for the business strategy choose to remain within the organization. This is such a core building block that the other two aspects fail if this aspect fails.
Today, many organizations have programs for dealing with the first two. It's the last issue - retaining top talent - that continues to be problematic.

In the past, organizations have focused primarily on pay as the main retention motivator. Top quartile base salaries, retention bonuses and stock-based plans have all been utilized in an effort to reinforce the message that the individual is valued. Many of these programs have not provided the breadth of reinforcement anticipated at the same time as the payouts themselves have increased dramatically. Needless to say, many of these strategies are under serious review today.

And appropriately so. What motivates top talent - at any level - to stay or leave is highly complex and highly individual. Therefore, the whole subject of Rewards and Recognition in a succession management context requires review. First, a definition of both is in order:

* Rewards. These are monetary mechanisms that organizations use to demonstrate how much they value an individual. The mechanisms involve cash or cash equivalents (e.g. Base Salaries, Variable Pay programs including stock ownership/value plans, enhanced benefits, etc.). The purpose is to excite the Achievement drive in the individual so that s/he will strive harder to earn them

* Recognition. These are the non-monetary mechanisms organizations use to reinforce the message that an individual is valued above others. Mechanisms include awards, promotions, interesting work assignments, learning and development opportunities, coaching, the attention of a mentor, designation as an official High Potential leadership candidate in the succession plan, etc.

Their real purpose is to increase an Affiliative connection to the organization and to further excite the desire to get ahead (Power drive).

There are increasing pressures on the Rewards side of the top talent retention story, partly because of all the research that has indicated little relationship between top talent retention and pay but even more because of public concerns about the perceived disconnect between individual packages and corporate performance. The situation is ripe for fundamental re-thinking but is unlikely to change the current paradigm - performance linked to payout. So expect some new vehicles and (hopefully) some more rigorous performance metrics but not much else.

So, what about the other succession management reinforcer: Recognition. Sadly, organizations don't seem to be doing much better in using Recognition than they are in using Rewards. For example, we interviewed 15 "High Potentials" from the succession list in one national company.

In only two cases were the individuals pleased with their treatment as High Potentials (mainly because they were still coasting on the euphoria of having been recognized as High Potentials in the past two months). Where there had been time for second thoughts, we found a very different story.

One person had been asked to take back a job he had already done "for the good of the company". He had then been left there for a year and a half. Another had been ignored because she was supposedly so good she didn't need attention. One was being discriminated against because the boss was jealous and another was simply being marginalized because the boss was afraid of showing favouritism. And this was in a company that won an award for best human resource practices!

Four Tips for the Future

So what does all this mean for Reward and Recognition design for the future?

1. For starters, it means throwing away the cookie cutter. Talent happens one person at a time so one-size-fits-all approaches in the succession management context are doomed to failure. The critical issue for HR professionals will be the need to come up with individualized reward structures, at least for key talent. The point is not how much gets put on the table but rather, how well the overall package fits with what the organization wants to achieve and what the individual values.

2. But it's not just reward structures that need to be individualized. How reward and recognition mechanisms work together for each individual also needs rethinking.

Let's look at what happens when someone is designated as High Potential. First, it makes the person feel flattered which should lead to greater affiliation with the firm. It also makes them feel important, giving them a greater sense of power. All good recognition outcomes. However, don't be surprised when that individual also expects a reward that is in keeping with his/her newly acknowledged value to the organization. To meet those demands, competitive salaries (i.e. pay that is not at risk) are the foundation. But the portion that is at risk needs to fit the circumstances of the career path you put each High Potential on.

For example, one company decided to put a High Potential into a job for strictly developmental purposes. He was not expected to stay in that role or even necessarily to be a superstar in it. It was his long-term potential that was being recognized and developed. The VP HR knew that if the variable component of the person's reward package provided a low payout a year later as a result of diminished performance, the reward outcome would have been counterproductive. Therefore, HR designed his incentive to reward growth in breadth/depth of competence, which was the point for putting him in the role in the first place and something on which he could/should deliver.

On the other hand, that same company put another High Potential into a demanding new business opportunity. Here, it was the person's immediate readiness to move to the next level that was being recognized. In this case, a more traditional variable pay plan was appropriate for rewarding growth in depth of contribution. The critical issue here was to clearly define some milestone levels to honour the fact that this person was new to the level of complexity faced.

3. As these two examples show, integrating rewards and recognition requires paying real attention to the recognition side of the equation, in particular by focusing on development. Providing for the future leadership of the organization means making sure people gain the intellectual, ethical and behavioural capability to deal with the complexities of the business and human issues the organization will be putting in front of them. That means different development actions for different people. And it doesn't happen by accident.

For example, if you formally recognize (and reward) executives and managers who are great coaches and call it when they are not, you will get more coaches. And talent always needs coaching.

If you recognize potential by sending people on leadership development programs (whether internal or external) early in their careers, you will get better leadership capability sooner and across a wider spectrum.

If you acknowledge high potentials and then do nothing about it, you will get people who feel valuable but undervalued - a sure recipe for top talent turnover.

If you advance people with questionable values and ethics into positions of greater authority, you will get more people with questionable ethics and a poisoned succession pool.

If you seek out the "right" work to give to high potential people - work that fits with their strengths - you will get above average results and greater commitment. If you do not match the type and pace of assignments given to talented individuals, you will marginalize their results. And their commitment.

4. Finally, the true values of the organization show just as much in the way it deals with people and practices that drag everyone else down as in the way it rewards and recognizes excellence. In other words, succession management means weeding as well as feeding. HR executives should be pressing forward on practices that make the performance metrics/consequences for low performance just as clear as the performance metrics for high performance.

In sum, it is the Rewards side of the Rewards and Recognition equation that has received the lion's share of attention but it is the Recognition side that ensures successful outcomes on the challenges of succession management, whether from a governance, organizational or individual viewpoint. HR executives cannot ignore Reward program redesigns (you need to get them right) but they are only the foundation. Actively managing out individuals with low potential while building the intellectual, ethical and behavioural capability of the "A" players (the future leadership bench) is where the gold is for succession management. The effort pays dividends in sustainable performance far in excess of investment costs.

So take a good look at your organization's Rewards and Recognition efforts. Do they support your succession management program(s)? Are they integrated with other elements of the overall employment deal? Are they good enough?

Paul Britton is a Partner with Crossford Consulting Group.
He has over 25 years of human resources management experience working in both line Human Resources and consulting.

Reprinted from HR.com