Leadership Shortage Starts to Bite

U.S. companies are in the grip of a leadership talent drought. Nearly 60 percent say they're experiencing a leadership shortage right now that impairs corporate performance, according to a new survey from Aon Consulting Worldwide. That's up an astonishing 40 percentage points from just one year ago. Another 30 percent of respondents expect to feel the pinch within the next four years.

The Boomer retirement wave isn't exactly breaking news, and you might have expected businesses to be prepared well in advance for its effects on senior positions. But it seems many have been caught flat-footed. Most organizations' executive compensation and benefit plans aren't good enough to keep key people on board, according to the report, which polled senior HR execs and managers at more than 1,000 organizations in a broad range of industries. Only about one-quarter offer retention incentives to key executives; 17 percent offer recruitment incentives.

Companies are starting to wake up to the challenge, partly because the current economic conditions put a premium on leadership skills. Looked at one way, the credit crisis is a leadership crisis, notes Seymour Adler, senior vice president of Aon Consulting's human capital practice. "If you look around, especially in the world of finance, what you see is the critical importance of leadership," he says. "There's increasing awareness that intangibles around the quality of leadership are determining, in large measure, which companies are thriving, which companies are holding their own, and which companies are not doing well."

While companies recognize the importance of leadership development and talent management programs, they're not confident that their programs are delivering the goods. For example, only about 20 percent of the organizations in Aon's sample felt that they were very effective or extremely effective at succession planning.

Janette Marx, senior vice president with specialist staffing firm Ajilon Finance, says that companies have made strides in succession planning, but tend to concentrate their efforts on revenue-generating functions. "Oftentimes, companies spend more time creating these plans for their front-office sales teams, and they don't keep the finance team as much of a focus -- which can be a very big mistake," she reports.

Finance will be deeply impacted by the incipient mass exit of senior talent from the workplace; the AICPA predicts that by 2020 three-quarters of its membership will reach retirement age.

Bumping up executive benefits can help stem the retirement flood, and companies are increasingly offering executive nonqualified benefit plans (and company matches), special life insurance plans, and supplemental disability plans, according to Aon.

One simple, cost-effective retention tool that's often overlooked is total rewards communication. Surprisingly, only about one-half of the surveyed companies provide annual total compensation or total rewards statements to their workforce. "If you're a senior executive and you've got somebody reporting to you who makes $350,000 a year, for a trivial amount of money you can do a much better job in communicating the total rewards to that person," says Adler. "The calculations are not complicated; it's a matter of getting a good communication strategy in place and crafting messages that state the value of the package and build the employment value proposition."

On the recruitment side, companies may have to get more aggressive in their hiring practices, like the one-third of companies in the Aon survey that recruit continuously for hard-to-fill positions to build a pool of candidates. Most organizations wait until they have an open position before putting out feelers. Marx's recommendation: "Always be recruiting. Maybe you don't have a position open now, but you might in a year. If you build a relationship with that future hire, by the time you come to make them an offer they'll already feel like they're part of your company."