Leaders follow the money

According to money bible Forbes, average pay of a chief executive of a Fortune 500 public company in 2004, including salary, bonus, and other compensation such as stock and pensions, was US$28,000 (NZ$42,000) a day. Every day of the year. That is more than 300 times the average worker's pay.

The first question is, are these captains of industry worth it?

Of course not. When the salaries and perks continue even when profits or productivity drops, it is clear no one has worked out how to tie what these leaders are paid with their performance.

The second may be, how do I get me one of those jobs?

"It's a fundamental question in society, 'who shall lead?'," says organisational psychologist Dr Jared Lock, director of consulting services for Hogan Assessment Systems.

Oklahoma-headquartered Hogan makes assessment tools to help organisations select and develop leaders and employees.

Lock says the way leaders are chosen needs to change.

"Up until this point, it's a matter of 'let's move them forward based on charisma, let's move them forward because they seem to have a good idea, let's move them forward because they did well in a junior role'," Lock says

He says assessment testing hasn't been used at the top echelons of organisations, especially for selection, and while people are often hired or promoted based on technical competence, what gets them fired is usually a poor cultural fit or personality flaws which could be picked up with more scientific evaluation systems.

Charisma, creativity and competence sound like good pointers to leadership ability, so what was the problem with that scenario?

Lock says when you dig into the records of good leaders, there are other factors at work.

"It has a lot to do with getting people to put aside their own self-interest to pursue group goals, because people tend to work mainly on personal goals, and it is up to leaders to get them to put those aside and concentrate on goals that will help the company, help the group, help the team," he says.

"Thinking from that perspective, effective leadership should be defining how the group compares with the competition - that could be internal competition, such as two sales groups, or external competitors, but at some point you need to keep score and determine who is doing well and who is not.

"The leadership research over the past 40 years has ignored that definition or any focus on the competition, so what you get is the troubadour tradition of leadership studies, such as the books which give you "five points of effective leadership," Lock says.

Lock has identified traits in leaders of organizations which consistently out-perform their peers.

"Firstly, those leaders have high levels of integrity, which just means they keep their word and don't play favourites.

"They are extremely decisive, they make good decisions and they make them quickly.

"They are also competent, they are good at their business, they understand it thoroughly, they have a vision and they are willing to explain it to their employees why it matters."

Lock says highly effective chief executives are amazingly persistent.

"They just work and work at something and have a singular vision of where they want to go and how they want to get there.

"They are also amazingly humble. When you look at the CEOs for Fortune 1000 companies with 15 years of sustained performance above the competition, you are going to find they are extremely humble, and their employees understand that."

He says humility is more a part of the New Zealand culture than is evident in the United States, and researchers should consider whether that is a positive or negative factor.

When companies fail, it is usually the chief executive or the board that is blamed.

Hogan has built predictors for failure which are built into the software, what he calls managerial derailers, or those characteristics a person shows under stressful conditions and conditions of uncertainty that cause them to fail.

"Under pressure, managers may cause other people to want to move away from them, either by showing stress, talking about only bad things rather than good things, slowing down processes because of fear of failure, and not doing what they say they are going to do, which is a kind of passive aggression.

"Other leaders, and this will typically be your charismatic ones, will tend to move against people, so they bully them with their personality, they are overly arrogant, they are mistrustful, they are attention-seeking such as Bill Clinton, or they might be flighty and move this way and that way, somewhat like Larry Ellison does at Oracle.

"A third sort of executive does what we call moving towards other individuals or processes, so you may have the micro manager like Michael Eisner at Disney, or you have the overly dutiful person who wants to kiss up, like George Tennent, formerly of the CIA."

Eisner of course is the chief executive who collected $954 million from Disney in the 10 years to 2002, during which time Disney shareholders enjoyed a 1.9 per cent annual rate of return, compared with the Fortune 500 median of 9.1 per cent.

Lock says companies need to learn how to pay for performance at the executive level, which means measuring how the organisations they lead match up against their competition.

Another big derailer is an inflated sense of entitlement - the concept of "I deserve this, I'm worth it, I'm the best there is, and you're lucky to have me".

"I heard a CEO say recently 'that's what guys like me get paid,' so you almost get this cronyism going on at the executive compensation level," Lock says.

From his research, Lock estimates between half and three quarters of executives and business leaders are derailing every day.

"That means 50 to 75 per cent of managers are causing real stress, real turmoil and real concern in staff out there. But the trouble is, these managers think they are in the top 25 per cent.

"If you look at climate surveys companies run where they ask their employees what is the most stressful part of the job, 75 per cent will say 'my immediate supervisor'.

Lock says chief executives often don't consider how happy the people in the companies are.

"I'm a fan of profitability with morale, and lots of people forget the morale part."

He says business success comes down to effective business models rather than charismatic leadership.

"You should find something people are willing to pay for, you ought to deliver it consistently, you need to win the trust and respect of your staff, and you need to earn the loyalty and respect of clients or customers.

"I put that at the bottom because without the others, that can't happen.

"A lot of companies put at the top of their mission statements that they care about shareholder value or they care about the customer. I have flipped that. You don't have to go far to hear employees say, 'if the company is taking care of me, I'll take care of the customer'."