Attracting Talent Amid Cost Constraints
Published in the Director Advisory on Directorship.com
By Nels Olson
When it comes to recruiting world-class CEOs—who can make all the difference in the success of an enterprise—some things have not changed. Always in demand, this select group is more coveted than ever as companies seek the edge in a challenging economy. While the pool of individuals with the skills and experience to lead these companies remains small, the supply never keeps pace with the demand.
What has changed, dramatically, is the steady spotlight on compensation. In the current environment, companies are subjected to intense scrutiny: by regulators, by the press and of course, by shareholder groups, who will increasingly have input on issues once the business of the board only. Nonetheless, companies must still vie for the best CEOs.
Everyone—candidates for CEO jobs included—realizes that the game has changed significantly when it comes to attracting top talent in a cost-constrained, highly sensitive environment. And no one, on the giving or the receiving end, wants to be in the position of defending a pay package that attracts the wrong kind of attention. That does not mean, however, that companies will have to recruit less-than-ideal executives for the crucial top spot, nor does it mean the executives who are tapped for these ever-demanding positions will have to settle for less than they deserve. Both sides must recognize that the ground rules have changed and adjust accordingly.
Job one is finding the best possible CEO candidate through a rigorous and systematic search process. This is no time to lower expectations or requirements. As always, the board should start with the strategy of the company and determine the skills, experience and specific competencies required in the next CEO to ensure the success of the strategy.
When closing in on the best candidate for the position, it is advisable to candidly address compensation package-related issues with the individual. A number of features that were previously fixtures in CEO packages, including perks such as chauffeurs, bodyguards, club memberships and personal travel in corporate jets, are no longer acceptable. This will be no surprise even for candidates who may be leaving positions where these features are still in effect.
The board doing the hiring and the CEO being recruited will most likely agree to leave some traditional, commonly accepted practices behind, including many severance provisions which, while not forbidden outright, are now far more difficult to get compensation committees to approve. They represent a “red flag” and may make the company vulnerable to damaging criticism.
Clearly, there is a delicate balance to maintain when constructing a compensation package for a new CEO: one that is generous enough to attract the best candidate, yet is in tune with currently accepted practices and does not raise objections among influential and vocal groups. Given the fact that the board or compensation committee must be able to justify all elements of compensation packages, one increasingly acceptable way to structure compensation is with a strong pay-for-performance orientation. Particularly in the case of a new CEO, this approach is perceived as fair to all sides. Assuming the CEO delivers above-market performance for above-market compensation, there is more likely to be broad understanding and acceptance.
Boards simply cannot afford to be myopic when assembling compensation packages to attract CEOs. Boards have to be acutely aware of how compensation will be viewed from a distance, recognizing what is off the table and what is now considered acceptable. With thought and proper planning, boards will still be able to attract the best CEOs, even in a cost-constrained environment.
Nels Olson is managing director, Eastern Region, for Korn/Ferry International and senior client partner with the Board & CEO Services practice.
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