Chief executives recruited from outside
a company earn significantly more in their first year than those promoted from within, according to a new study.
Executive-pay tracker Equilar Inc. found that external hires in 2007 and early 2008 received median compensation of $6.6 million, 65% more than the median $4 million for internally promoted CEOs. The compensation figure includes salary, cash bonuses and equity incentives. Compensation experts say outside hires tend to be paid more to offset the risks and costs of leaving one company for another, including lost benefits and equity.
The new study examined an unusually broad set of companies--nearly 1,300 across three major Standard & Poor's indexes. On average, outsiders were paid more at all companies, regardless of size. In the S&P 600 SmallCap Index, external recruits were paid a median of $3.6 million, more than twice the $1.6 million paid to internal successors.
Of the nearly 1,300 companies surveyed by Equilar, 136 replaced their CEOs last year, including 38 that hired outsiders. Small companies turned outward most often, probably because they lag behind larger organizations in succession planning, says Tim Sparks, president of Compensia Inc., a San Jose, CA, compensation consultancy.
Gaining Leadership Expertise by Spending Time in Non-Core Roles
Firms that direct senior executives to spend more time on their non-core job roles, see higher levels of performance, according to a survey by the University of Michigan's Ross School of Business. According to the survey of 378 Michigan-based executives, the average participant spend about 45 percent of his or her time on core job responsibilities and 55% in other areas: in project-based teams, enhancing individual career skills, developing innovative ideas or processes and working to support the overall company.
Those who spent just 36 percent of their time on core roles actually managed a higher-performing company than those who spent 50 percent of their time on core roles, according to the study.
"Leaders are pulled in various directions and that is why executive coaching is such a popular service these days, " says Jim Mitchell, senior vice president and general manager of Lee Hecht Harrison in Michigan. "If you don't take risks and are concentrating on those core roles that have an executive at his or her desk all day, you might be missing some good business opportunities."
Source: Michigan Business at www.mbizreview.com and The Wall Street Journal, July 28, 2008