Succession Planning Pays Dividends

April 4, 2003 ( - Though only 30% of US companies are utilizing a formal approach to identify high-potential leaders, most of those who have formal succession planning see higher total shareholder return.

In fact, the vast majority (83%) of the “high-performing” companies, those with total shareholder return in the top 75 th percentile, use a formal approach to develop high-potential leaders. Similarly, 88% of high-performing organizations use a formal approach to track performance of high-potential leaders, compared with only a third of companies overall in the sampling of 100 large firms, according to Hewitt Associate’s “Building High-Potential Leaders.”

The study also found that only about half (55%) of sampled firms consistently use a formal approach to identify high-potential leaders. However, those firms appear to be reaping the rewards of succession planning – all of them are performing at the 75th percentile or higher.

“Tell” Tales

The analysis shows that 64% of organizations in the 75th percentile or higher inform high-potential leaders of their status, while just 25% of companies in the 25th percentile or lower do so. Further, three-fourths of high-performing companies tell members of this group when they are no longer considered high potential, compared to approximately one-third of the bottom quartile companies that do the same.

The Difference

Seven out of 10 (71%) of the 75 th percentilers said those individuals with leadership potential were given special training opportunities, versus just one-third of those organizations in the 25th percentile or lower. Meanwhile, 44% of high-performing companies offer their leadership candidates a chance to interact with the board, compared to 17% of those organizations in the lowest performing quartile.

Comparatively, 62% of companies in the 75th percentile or higher pay high-potential leaders more than other leaders at the same level, while only 25% of the companies in the25th percentile or lower have the same compensation philosophy.

“Although growing leaders takes time and effort for companies to do well, our study proves that there is a clear link between investing in high-potential leaders and delivering strong results for shareholders,” said Marc Effron, global leader of Hewitt’s Leadership Consulting Group. “This, along with the looming global talent shortage, makes it shocking to see so few companies investing in their best talent. The fact is that organizations will not be able to go outside the company to ‘buy’ leaders, as they have in the past. Instead, they must start building them today.”