7 Essential reasons for a succession budget plan

Written by Paul Glatzhofer, VP of Talent Solutions

It’s never too early to start looking ahead. Most organizations have realized the importance of hiring, 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 organizations 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 organizational 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 close the deal to get your succession planning budget approved.

7 leadership assessment and 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 five 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 organization 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 organization this 3% could be a huge number of employees (and thus a huge cost savings).
4. Leaders rated as average to above average by their manager were two times more likely to be promoted.
   This is also a no-brainer but an important piece of the puzzle. If we are assessing individuals for potential, we need to hold up our end of the bargain and ensure that that they realize that potential and eventually get promoted. It’s not enough to simply classify an employee as a high potential or place them in the proverbial bucket for advancement – there needs to be communication throughout and eventually action taken.
5. Executives with high scores on a leadership assessment had 46% higher engagement scores for their employees.
   Similar to the retention figure, companies are seeing that high performing leaders engage their staff in different ways compared to others, resulting in huge gains in engagement scores with effective leaders.
6. Executives who scored above average were twice as likely to support change initiatives.
   This is 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 navigate their way through a super competitive and global market. To do this, many companies are having to pivot and reinvent the way they do business to stay relevant. Hiring leaders who are champions of change will help organizations accomplish this goal.
7. The average cost to replace a bad executive level hire is five times their annual salary.
   There are many facts and figures discussed regarding the replacement costs of a bad hire. For executive level hires it is typically cited as 2.5 times their annual salary. It is easy to do the math and figure out how much this could cost you.

The importance of budgeting for succession planning

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

These facts are taken from Talogy’s own research on how our leadership assessment model predicts important organizational outcomes. Sometimes those who hold the purse strings are not thinking about how important a well-defined leadership assessment and succession planning program 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, succession planning is essential to driving organizational success.  Therefore, having and budgeting for a succession planning program is something every organization should take seriously.