Introduction
The age-old adage “you get what you pay for” has been applied to everything from consumer goods to human capital. In the corporate world, this has translated into a belief that higher CEO compensation indicates superior skills and, consequently, better company performance. However, recent studies, such as the one titled “Performance for pay? The relation between CEO incentive compensation and future stock price performance,” challenge this notion. The study found a negative correlation between high CEO pay and future stock returns, suggesting that exorbitant compensation packages might be counterproductive[i].
The Illusion of Experience
The Overconfidence Dilemma
One of the key findings of the aforementioned study[ii] was that high pay often leads to CEO overconfidence. This overconfidence manifests in various ways, such as overinvestment and value-destroying mergers and acquisitions. In a world that is rapidly changing due to technological advancements and geopolitical shifts, overconfidence[iii] can be a fatal flaw. CEOs who are set in their ways may find it difficult to adapt to new business models or pivot in response to market changes.
The Experience Paradox
Highly paid CEOs are often veterans in their respective industries. While experience is invaluable, it can also be a double-edged sword[iv]. In a world where yesterday’s solutions are today’s problems, experience can sometimes act as a barrier to innovative thinking. The “this is how we’ve always done it” mindset is a dangerous one, especially when navigating uncharted waters. Researchers found that many CEOs with experience make many false assumptions imaging that they are dealing with issues as they did in the past and falsely assume will likewise work again in today’s context. [v]
The Case for Younger Talent
Research shows two extremely compelling arguments that clearly justify the case for “younger” and more adaptable talent to be considered vs their more experienced counterparts. They are:
- Agility Over Age – Younger executives, who have grown up in a digital age are often more agile and adaptable[vi]. They are more likely to be comfortable with disruptive technologies and open to experimentation. Their leadership style is often more collaborative and less hierarchical, which is more in tune with the expectations of younger employees. Data also shows companies led by younger CEOs (below 40) are 20% more likely to adopt new technologies.
- Risk and Reward – There is a perception that younger talent is riskier due to a lack of experience. However, what they lack in experience, they make up for in their ability to think outside the box and challenge the status quo. In a world that rewards innovation, the ability to take calculated risks is more valuable than ever. [vii] In fact, research data shows that younger CEOs (below 40) are 30% more likely to engage in calculated risk-taking.
Local Talent: An Untapped Resource
Soon after India obtained independence, Prime Minister Jawahar Nehru chaired a meeting to discuss appointing a chief general for the Indian Army. As key leaders discussed candidates and options, Nehru disappointingly claimed, “I think we should appoint a British officer as the General as we don’t have anyone with enough experience to lead.” Everybody nodded their heads in support, and they started discussing possible British candidates. This same conversation Nehru had with his leaders half a century ago is the same conversation taking place in many global organisations today. There are always big vacancies to fill, yet no one is experienced enough to fill them. And most leaders look outside their organisation and even outside the country for that perfect ‘experienced’ person. Nehru’s story though, ends differently.
One of Nehru’s officers abruptly interrupted Nehru as he contemplated which British ‘expat’ to bring in, “I have one point, sir. Can I interrupt?” Nehru nodded, “Yes, gentleman. Speak.” The officer responded, “Sir, we don’t have enough experience to lead a nation, too, so shouldn’t we appoint a British person as the first Prime Minister of India too?” The meeting hall suddenly went silent. Nehru had an ‘aha’ moment and later decided against appointing an ‘experienced’ General but a high-potential local.
I share this story as it is important for us to enable our local, young, and agile talent to accumulate the experiences needed to run a business, manage a team or lead a division. Unless we start investing in and giving them opportunities, we will always be in a perpetual position of never having talent ready to deploy. Research has shown that local talent brings something extra to the table. The research findings indicate that local talent brings cultural capital to the table. Local talent brings with them a deep understanding of the local market and culture, something that foreign experts may take time to acclimatise to. This cultural capital[viii] can be a significant asset, especially when expanding into new markets or launching new products. I met David Livermore, the cultural capital expert, a few years ago when he was speaking at the Global Leadership Summit (GLS) in Chicago a few years ago. David Livermore’s research in “The Cultural Intelligence Difference” underscores the invaluable asset of cultural capital that local talent brings to an organisation. According to Livermore, companies that leverage this cultural intelligence are not only more effective in navigating local nuances but also experience a significant advantage in market penetration and customer engagement. So, when it comes to understanding the pulse of a local market, there’s nothing quite like having a team that’s culturally rooted and attuned to the community’s unique needs and preferences. Cheers to the power of local wisdom!
Another important data point shared was that companies that prioritise local talent see a 25% increase in market penetration. This is significant, especially in these recessionary times where market access and market development will be key areas to win for organisations.
The Needed Imperatives
Almost every business leader I meet complains about the same issue – they don’t have enough good talented people to take their businesses to the next level. Talent has become the prime source of competitive advantage. Yet, most of us unknowingly ‘kill’ our talented people. How are we ‘killing’ our talent? By not allowing our people to fulfil their potential. And we do this by curtailing their experiences.
Talent can only be developed through experiences and failure. You cannot send a person to a 3-day classroom programme on swimming and expect them to become great swimmers. To learn to swim, you need to practice in the pool. No matter how much you listen, read or watch about swimming, without pool practice, you won’t be able to swim. Real learning happens when applied in the workplace. Nehru learnt to become Prime Minister of India through the school of hard knocks and experience. Even if he was sent to ‘Prime Minister School’ (if that existed!), his learning would still ultimately come from doing the job. But when you block your people from the roles they crave, because of their lack of experience, we thereby ensure they never learn.
I recall going through Succession Planning reviews with a number of senior business leaders in my capacity as HR leader. Each year, these business leaders would highlight specific talents they had in their teams. But much to my dismay, every single year, those highlighted were deemed “not ready” to take on bigger roles, claiming they needed a few more years to become ‘ready’. Four years later, the same excuses rang. The story never changed or ever will. As long as we hoard our best talent and never allow them to grow through new experiences, they will never be ready.
Thomas Edison correctly stated that “genius is 1 per cent inspiration and 99 per cent perspiration.” Based on research done by Anders Ericsson, we now know just how much ‘perspiration’ is required to become a genius– apparently three years at a job or 10,000 hours. Ericsson’s research indicates that if you are at your job for about 2-3 years (depending on how many hours you put into your work), you will master the role. But once you have mastered it, your learning subsides. And for you to keep growing, you need to learn something new.
The most talented people have figured this out, and so if you do not give them challenging “new” work, they leave. They may claim they leave for money or other reasons, but if you truly give them challenging work that forces them to learn, they hardly leave (it may also be because they are so busy being challenged that they have no time to do up their resume!).
However, the less talented employees, who love being in their comfort zone, will stay on (maybe forever). The job becomes easy making it ‘wise’ to continue in this zone of comfort. The real talent, however, knows that if they do not keep getting new experiences and developing themselves, they may never achieve their dream. And so, they pack their bags to gain new experiences if you don’t provide them at your company. So, the key to our success and the success of our talent is to continuously give them bigger roles and effectively upskill and retrain them consistently and consistently in cross-functional and in areas outside their comfort zone. As technologies evolve, there is a growing need for continuous learning and adaptation[ix]. Companies should invest in retraining programs that equip local talent with the skills needed to navigate the new world order. In fact, data indicates that companies investing in retraining programs have a 40% higher retention rate.
Conclusion
The world is in transition, and clinging to old paradigms of leadership and talent management is not just ineffective but potentially disastrous[x]. It’s time to reevaluate how we measure CEO effectiveness and how we nurture talent. High pay does not necessarily equate to high performance, and experience is not the be-all and end-all it once was[xi]. Investing in younger, agile leaders and tapping into the rich reservoir of local talent can provide companies with the edge they need to succeed in a volatile business environment. I am not at all advocating that experience has no place in our business. Experience is necessary for big roles where failure should be minimised. However, one cannot attain that experience unless someone gives these people a break. We cannot gain experience unless given a shot at the big stage.
What I want to emphasise is that this “talent disease” which is plaguing our nation can somewhat be curtailed if we build in talent development as part of our business agenda. So, what are some practical things you can do:
- Demonstrate your commitment to employees by preferring to develop from within versus hiring from the outside. Give your ‘inexperienced’ people a chance. Sure, they may take some time to ‘learn’ the job, but in the long term, it will be better for your business.
- Keep pushing your people outside their comfort zone. They need experience. Give them projects outside their silos. And when they fail (which they will!), help them get up and learn from their failures.
- Empower your employees—make them partners in their own development. Make sure they understand the importance of hard work, learning and pain.
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Roshan Thiran is CEO of Leaderonomics, a social enterprise and HR Tech organisation. He is also a Research Fellow with the National Human Resource Centre (NHRC) of HRD Corp. He believes that inside everyone is greatness waiting to be unleashed and it is up to leaders to enable this greatness to be showcased.
The views expressed here are entirely the writer’s own.
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