Succession Planning and Executive Compensation

The Issue

Who will be in charge of your company if the unthinkable happens? Reinforcing what we have seen in a number of high-profile cases, as well as studies from Stanford University’s Rock Center, Towers Watson and Korn/Ferry, among others, most companies do not have an effective CEO succession plan.

Farient’s Point of View

It is important for companies to look two to three years ahead and ensure they are building a “pipeline” of talent. In our experience, a successful succession plan is inextricably linked to compensation, which means the compensation committee should have a significant role in the plan. At Farient, we create succession plans that take into account the skills, experience and cultural values of the talent pool, and provide your internal candidates opportunities to showcase their talent.

How Farient Can Help

Only one candidate will become the CEO. Therefore, it is critical that the incentive/reward design supports the succession process. Farient works closely with compensation committees to help link succession planning to compensation. To ensure succession planning becomes part of the company’s DNA, some approaches may include: (1) linking a portion of the CEO’s annual bonus to his/her proactive development of the designated internal candidates, (2) rewarding the designated candidates for enhancing their experience in key areas, and (3) providing special retention packages for those senior executives not designated as potential CEO successors.