Executive compensation
CEO succession needs both sensitivity and flexibility
CEO succession – and the onboarding of a new person to lead a company – are processes that require precise planning and careful forethought: not least in terms of compensation. The transition to new leadership is fraught with potential risks and can have repercussions throughout an organisation. CEO speaks to George Paulin and Matthew Isakson, partners at Meridian Compensation Partners, on how to manage the change successfully.
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s the Greek philosopher Heraclitus once noted, the only constant in life is change. In the corporate world, this means that planning for a change in senior management is an ongoing process, no matter how settled and successful the current CEO might be. Whether a senior executive hands over the reins as part of a steady, organised and structured process or their departure is precipitated by a sudden change in circumstances, boards need to have a plan in place to ensure the company can not only survive – but thrive. Without the right person in the top, even the best companies, with the most innovative and carefully prepared strategies, will struggle to prosper. Furthermore, we live in increasingly unpredictable times, as proved by the pandemic, even as the pace of technological change means that markets can appear and disappear almost overnight. Having the right skills in place to steer a steady course is crucial. Making that plan, however, can be difficult. It can be hard to start the conversation about who takes over while the incumbent is in place. A good CEO who thinks they are going to be replaced will not perform optimally. “CEO succession planning is challenging because it has big implications,” says Matthew Isakson,
a partner at Meridian Compensation Partners. “The overall strategy and leadership of the company are at stake, and it raises internal and external issues for all stakeholders.”
“In my experience, it is about matching up what is good for the company and what is good for the CEO,” adds fellow Meridian partner George Paulin. “Often those two things don’t coincide. The CEO might set a deadline, but the company might want them to stay. Or the board might say that the company is moving to the next stage of its strategy and needs different strengths. So, there can be a misalignment between individual objectives and strategic considerations.” “Further, in most organisations, complexities go beyond the incumbent CEO and the successor, extending to others who were not chosen and now have retention risk.”
A difficult conversation
Discussions about who will take the reins next are necessary – but they come with certain risks. They can, for instance, bring discord to a well-functioning leadership team, as the CEO may feel threatened while potential successors jockey for position. “Leadership is a team rather than an individual, and companies don’t want a long-term pre-identified successor,” says Paulin. “They want people to compete for that at some point. We have a big client situation right now in which three potential succession candidates have been identified, but the company is not ready to anoint anyone yet.” “Often you see the CEO actively involved in managing and developing the internal candidates, but it is ultimately not the CEO’s decision,” Isakson notes. “The board may choose to look outside the company, though it should also be developing a stable of candidates. There is the potential for noses to be put out of joint, particularly if an internal candidate doesn’t get the job.”
In the current climate with the length of CEO 34 Chief Executive Offi cer /
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