7 reasons why a succession planning program should be in your budget

Written by Paul Glatzhofer, VP of Talent Solutions
Previously published by PSI Talent Management or Cubiks, prior to becoming Talogy.

It’s never too early to start looking ahead. In fact, your organisation may already be finalising its budget for the coming year. Most organisations have realised the importance of recruiting, developing, engaging, and retaining their leadership talent – no surprises there. They have also found value in using an objective and reliable measurement method to identify leadership and high potential talent.

However, some organisations still struggle to get buy-in from senior executives (those who hold the purse strings) and lack budget approval for one of the most important drivers of organisational success. If you are renewing your leadership assessment budget or trying to get executive support for the first time, these seven facts will help you get budget approval.

Seven Leadership Assessment & Succession Planning Facts:

  1. Leaders who score above average on a leadership assessment are 50% more likely to be successful in the role. Being able to measure and accurately predict which leaders are going to be successful is an invaluable part of the succession planning process.
  2. Leader turnover is 5 times higher for those who score below average on the assessment. Although predicting turnover is typically not the goal of a leadership assessment or succession planning initiative, it is an important outcome. Our validation data shows that we see a much higher percentage of leaders leaving the organisation who score low on the assessment.
  3. Leaders who score above average retain their staff at a rate of 3% higher than their lower performing peers. This should come as no surprise, but it is an important finding. Depending on the size of your organisation this 3% could be a huge number of employees (and thus a huge cost savings).
  4. Leaders rated as average to above average were twice as likely to be promoted. This is also no surprise, but an important piece of the puzzle. If we are assessing individuals for potential, we would expect that they realise that potential and eventually get promoted.
  5. Executives with high scores had 46% higher engagement scores for their employees. Similar to the retention figure, companies are seeing that high performing leaders engage their staff in a way different than others. This can result in huge gains in engagement scores with effective leaders.
  6. Executives who scored above average were twice as likely to be good change agents. This might be one of the most important findings in our validation data – although on the surface it may not seem that way. Almost every company we work with is looking for effective leaders who can help them manage their way through a super competitive and global market. Many companies are having to reinvent the way they do business to stay relevant. Hiring leaders who are “change agents” will help organisations accomplish this goal.
  7. The average cost to replace a bad executive level recruit is 5 times their annual salary. There are many facts and figures discussed with regard to the replacement costs. For executive level recruits it is typically cited as 2.5 times their annual salary. It is easy to make the calculation to work out how much this could cost you.

The research over the last 50 years in the area of leadership selection and development is clear. Focusing on your high-potential staff within the organisation is not only important, but imperative in order to compete in today’s environment.

These facts are taken from PSI’s own research on how our leadership assessment model predicts important organisational outcomes. Sometimes those who hold the purse strings are not thinking about how important a well-defined leadership assessment and succession planning process can be. It is our job as leaders, consultants, and human resource practitioners to educate others and show them the long term benefits associated with a focus on leadership talent. While it may feel like just another line item in the budget, this should be something every organisation takes seriously.

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