PURPOSE & IMPACT

Month: August 2024

Notes on India Executive Compensation – from Deloitte India 2024 Rewards Report

Interesting notes on executive compensation from Deloitte’s 2024 India executive performance and rewards survey report. Noticed a related discussion on ET TV. According to Deloitte report site, their survey covers information from over 400 companies across all major sectors.

In general, executive compensation continues to grow, and evolve fast with the market. Senior leadership roles come with much higher complexity, risks, stress and decreasing tenure. All the more reason for CEOs to have sounding boards and coaching support.

According to a Mint analysis of data from the past decade (2020), a CEO or MD of an average BSE 500 company stayed in the role for 3.4 years. Fewer than half of Indian CEOs completed three years in office. The tenure varied with industry and women were underrepresented. The global average for the world’s largest 2500 companies during 2004-18 was 5 years (PwC study).

Regarding age, “in NSE-500 companies, a typical Indian CEO today is 57 years old (roughly similar to Fortune-500 firms, where the average age of the top executive is 57.7 years). For the mid and small sized companies, the average age of CEOs comes down to about 50-52 years.”

Notes from the Deloitte 2024 report:
* About 45% of S&P BSE 200 companies (excluding PSUs) witnessed a change in their CEO incumbent over the past five years.
Almost six of every 10 new CEOs have been internal promotions. Amongst homegrown CEOs, business heads or CEOs of other group/parent companies were chosen to be the successors. In case of external hires, 81% of the new external CEOs were sourced from the same sector.
* About 3 of every 4 CEOs in India now earn more than INR 5 crore [approx. USD 596,000].
* Faster increase in promoter CEO compensation compared with professional CEOs.
* Average CEO compensation in India stands at INR 13.8 crore [USD 1.6 million], up 40 percent compared with pre-COVID times.
* Fixed pay for promoter CEOs now constitutes over half of the total pay. For professional CEOs, pay-at-risk (Short Term Incentives + Long Term Incentives) is much higher at 57 percent of the total pay.
* Companies assess CEO performance holistically but largely link only financial performance to incentives.
* The prevalence of stock options or ESOPs dropped from 68% to 49% over the past five years despite more companies using LTI. Larger companies with more mature compensation practices are adopting performance shares faster, in line with global best practices.
* The wide gap between median and average CEO compensation [INR 9.3 crore versus INR 13.8 crore] indicates the wide range of compensation numbers and some outliers on the higher end.
* After the CEO role, COO and CFO roles continue to command the highest compensation premiums (followed by CHRO role).

References:
* Old is gold, but new-age cos…; Feb 6, 2024
* The average Indian CEO lasts less than 4 years…; Mint, Updated Oct 2020
* Deloitte 2024 Executive…Rewards Survey Report; Apr 2024

Recent Notes From BCG on Corporate Transformations

Recent data from BCG on corporate transformation and link with total shareholder return(TSR) hold valuable food for reflection.
We see transformation initiatives in most companies nowadays, especially when leadership changes happen.

Selected Notes from the article:

* The empirical patterns of transformation are quite stable: At any point in the past 20 years, roughly 30% of companies significantly underperformed their sector for a period of multiple years, making transformation a necessity for performance reasons.
* Successful transformations are the exception, rather than the norm, even when measured on very modest criteria. Only 26% of corporate transformations successfully created value in both the short and long terms. More than 70% of companies fail to outperform their industry peer group average in both the short (one year) and long term (five years), after a previous performance downturn period (numbers quite similar to the findings in 2018 report). Sustainable value creation through transformation remains so rare.

* Pre-emptive transformations create significantly more value in the medium and long run.
* A leadership change during a transformation is associated with higher TSR performance over the five-year time horizon. The positive impact is even higher if the new leadership comes from outside of the company. However, a change in leadership is not a guaranteed success driver.
* You cannot cut your way to greatness: differential growth is critical to sustained value creation.
* Achieving sustainable growth and a future-proof operating model requires entering transformations with a long-term orientation, rather than merely focusing on addressing performance woes or catching up to peers in terms of technology stack or organizational best practices. Beyond mindset, culture, and metrics, a long-term orientation also means investing in the exploration of new ideas that could be the basis of future advantage.
* Putting a formal transformation program in place, scale of the program and the willingness to invest in change matter. Formalizing the transformation entails defining a clear governance and process-or setting up a dedicated transformation office-for coordinating and tracking progress on change initiatives, as well as regularly communicating it to the executive leadership team so that roadblocks can be addressed promptly. Moreover, it may mean putting in place a chief transformation officer to helm an ambitious change effort, which our prior research shows can improve transformation odds significantly. The role must be designed appropriately and filled by someone who is persistent, vigilant, and flexible—and who is trained for the job.

Source: Five Truths (and One Lie) About Corporate Transformation, April 12, 2024, BCG

The Golden Mindset To Protect In Success Which Often Gets Lost

Image: Pixabay, RoderickQiu


Some of us have seen this happen few times during our lifetimes.  A highly successful, global company with thousands of employees and the darling of the press and management books gets into trouble slowly and loses its shine eventually.  Thousands of jobs are cut, announced in phases over years and the decline become more visible gradually.  Issues become too big to ignore, other companies start taking over market share and breakdowns become more frequent with increasing number of unhappy customers.  Few revered corporate names have been visible in the press for these reasons, even during the last week.  This has happened to non-profit organisations as well.

The golden mindset to protect dearly during success is conscious humility.

A 2016 HBR Article (The Scary Truth About Corporate Survival) noted that 80% of the companies that existed before 1980 were no longer around.  Professors Vijay Govindarajan and Anup Srivastava looked at all companies that listed on U.S. stock markets from 1960 to 2009 and confirmed that longevity is decreasing.  Companies that listed before 1970 had a 92% chance of surviving the next five years, whereas companies that listed from 2000 to 2009 had only a 63% chance.  They wrote that the bad news for the newer firms is that their days are numbered, unless they continually innovate.  In short, even seemingly successful and rich companies can fall into a fight for survival sooner than expected.1

From a behavioural perspective, a consistent common pattern is noticeable.  As companies become more successful, arrogance tends to creeps in.  When this happens at the leadership levels and manifests in decisions, judgment calls and cultural elements, the damage can be enormous.  Most times, the degradation is not evident quickly.  This may show up in the form of increased ignorance of contradicting views and potential risks, lack of openness, increased feelings of invincibility, sometimes even translating to visible disrespect.  For leaders, even listening to varying perspectives from internal stakeholders goes down.  There is a rigid focus on “our approach, our process and we know what is right” thinking.  Stakeholders outside the organisation most times see this degradation earlier than those inside.  Even at this stage, the general feeling is that nothing could go wrong.  Leaders can also become overly focused on themselves. While some leaders may seem to be humble at a personal level, it’s important to watch out for reduced humility at an intellectual level (eg. openness to discussing varying and contradicting perspectives, disregarding others quickly).

The mindset of conscious humility and curiosity are closely related.  Genuine curiosity comes from being humble about one’s own views and openness to others.  Conscious humility are also related to compassion and empathy. Behaviours are consistently leading indicators of organisational unhealthiness and degradation, while the slowing business results may show up much later.  Once the negative impact on business results indicates a pattern, it becomes hard to turn around the ship quickly.  The focus then shifts to cost cutting and prevailing phases of uncertainty, leading to complex environments.  Does this sound familiar?

Professor Jim Collins (Good To Great) wrote about the Five Stages of Decline, in the book, How the Mighty Fall.  He called Stage 1 the “Hubris Born of Success”.  “Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward, for a while, even if its leaders make poor decisions or lose discipline. Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place.  When the rhetoric of success (“We’re successful because we do these specific things”) replaces penetrating understanding and insight (“We’re successful because we understand why we do these specific things and under what conditions they would no longer work”), decline will very likely follow.  Institutions can be sick on the inside and yet still look strong on the outside; decline can sneak up on you, and then-seemingly all of a sudden-you’re in big trouble.  Stage 3 is Denial Of Risk And Peril.  As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to “explain away” disturbing data or to suggest that the difficulties are “temporary” or “cyclic” or “not that bad,” and “nothing is fundamentally wrong.”  In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility.”2

While sometimes organisations may be truly unlucky in their journey to get hit with factors outside their control, most times, the start of organisational failures can be traced back to the hubris of success and lack of humility.  Leaders play a very important role in protecting and ensuring humility in day to day operations.  This starts with role modelling related behaviours and incorporating conscious humility mindset into the heart of thinking, decision making and organisation culture.  Ignoring these elements can invite serious repercussions.

In the book, Trillion Dollar Coach, the traits of coachability Bill Campbell sought were honesty and humility, the willingness to preserve and work hard and a constant openness to learning.  Honesty and humility, because a successful coaching relationship requires a high degree of vulnerability.3  Openness as well cannot exist without humility.  Humility can be developed consciously.

References

  1. The Scary Truth About Corporate Survival, December 2016
  2. Five Stages of Decline, Jim Collins
  3. Trillion Dollar Coach, Eric Schmidt, Jonathan Rosenberg, Alan Eagle

Wisdom (Self-Help) from Dr. Edith Eger

Dr. Edith Eger, a well-respected psychologist, has written two books, The Choice and The Gift, and has specialized in treating people with severe trauma.

These are some valuable notes for awareness and wisdom.

* Awful things happen to us and they hurt. These devastating experiences are also opportunities to regroup and decide what we want for our lives.
* Healing comes from freeing ourselves from certain thoughts and feelings that keep us trapped in the trauma.

* Freeing yourself from victimhood – “Suffering is universal but victimhood is optional.” …instead of asking “Why me?” we can ask “What now?”
* Freeing yourself from unresolved grief – It is important to let yourself grieve. Neither denying it nor being totally absorbed by it is healthy. Resolving grief means to release our sense of responsibility for all the things that weren’t up to us and to come to terms with the choices we have made that cannot be undone.
* Freeing yourself from resentment – Often the anger and resentment we have toward another may have more to do with our own issues resulting from unresolved grief or unfinished business.
* Freeing yourself from paralyzing fear – Many of us live a fear-based life. Our thoughts and behaviors are rooted in fear…living in constant fear keeps us from growing. Sometimes fear does not go away, but the best we can do is keep it from totally dominating our lives.
* Freeing yourself from judgment – We should look inward and examine the judgments we hold for ourselves as well as others. If we are being judgmental, we are unable to be compassionate.
* Freeing yourself from hopelessness – There is always hope. What we hope for may change with time, but hope is always there. It helps to remember that we have survived difficult situations before and that we can do it again.
* Freeing yourself for not forgiving – Forgiveness is something that we do for ourselves, not for others. When we do so, it frees us from the past. Releasing our anger and the people who have harmed us in the past can help to set us free.

* The search to make meaning in my life by helping others to make meaning, to heal so that I could heal others, to heal others so that I could heal myself.
* Suffering is inevitable and universal. But how we respond to suffering differs.
* The truth is, we will have unpleasant experiences in our lives, we will make mistakes, we won’t always get what we want. This is part of being human.
The problem—and the foundation of our persistent suffering—is the belief that discomfort, mistakes, disappointments signal something about our worth.
* Self-acceptance was the hardest part of healing for me.

Sources:
1. Twelve Steps for Healing Trauma..from Dr. Edith Eger’s “The Gift”; Psychology Today, Nov 2020
2. How to cope with grief..; Business Insider, Nov 2020
3. The Choice, Dr. Edith Eger

Conflict Competence In Teams, Cognitive Reappraisal, Leadership

These are selected notes from the book, “Building Conflict Competent Teams” (Craig Runde, Tim Flanagan; 2008).

Reappraising What’s Happening

“We often think that others’ motives are worse than they actually are, and this causes us to feel threatened and get upset. Looking at the situation to find less sinister motives can dampen your emotions. This process is referred to as reframing; that is, you consider the situation from new frames of reference.
It is associated with a psychological concept called cognitive reappraisal, described by a quote from Marcus Aurelius: “If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”

Cognitive reappraisal means reinterpreting the meaning of what you see or hear. You may initially construe another person’s actions as hostile to your interests. Perhaps you think they are moving in on your turf or trying to make you look bad in front of others. Although this is certainly possible, there may be innocent reasons for their actions. Research has shown that reappraising situations can lessen emotional tension. In particular, changes in brain activity are analogous to those that occur when a person uses reflection and mindfulness techniques. When this happens, negative emotions lessen and more positive emotions emerge….

Team leaders can have a profound impact on the emotional climate of their teams. Leaders who demonstrate positive moods and effective emotional control can create a positive climate within their teams. When a leader conveys news, her tone and demeanor may have greater impact than the content of the message. The team leader plays a critical role, but all members of the team have to work together to address conflict effectively. They need to participate in developing and upholding team norms, which support and empower individual team members to step in when they see relationship conflict emerging that can harm the team. A team member who sees other teammates acting in ways that are breaching trust or contributing to destructive conflict can intercede and remind the others of the team norms for how to deal with conflict… “

Balancing Respect – Employers And Candidates

According to a recent Korn Ferry Briefings podcast (The Frenzy To Find Work), around 77% of job seekers were ‘ghosted’ (abruptly cutting off contact/all communication) by companies last year. Studies from the platform Indeed also indicate similar percentages in recent years.

According to a report from the hiring platform Greenhouse, around 45% of job candidates have been ghosted after an initial conversation with a recruiter. Researchers also found that candidates from historically underrepresented backgrounds are 62% more likely to be ghosted after a job interview.
These studies may be U.S. focused but I’m guessing this aspect of India market is not different.

During recent years, we saw companies complaining about candidates doing the same. When the job markets are strong, the pendulum tends to shift.

All parties seem to be overly focused on the short term. The reasons for ‘ghosting’ on either side could be many. This leads to classic “Lose-Lose” situations.

How can we think “Win-Win”?

Companies need to figure out at a bare minimum, to use technology (most tools nowadays support this) effectively to at least inform/update the candidates on where they stand (even if it’s a short message). Behaviors/habits of recruiters/recruitment teams need to be aligned. In many cases, these teams are short staffed and therefore, recruiters tend to focus/prioritise completely on closing open roles. Companies need to ensure that their brand value and trust do not erode by ignoring this important aspect.

Similarly, candidates also have a responsibility to inform companies on where they stand in terms of their decision making.

Think long term, win-win. This builds engagement and effectiveness both ways.

Greed and Leadership

Have you observed greed in leadership? How has that impacted/influenced your feeling of trust and relationship with that leader, your organisation, yourself?

These are selected notes from the Manfred F. R. Kets de Vries, Distinguished Clinical Professor of Leadership Development and Organisational Change, INSEAD (from the article, ‘Is Greed Destroying Your Soul?’)

* Greed may have a purpose, according to evolutionary psychologists. They believe that, by pushing us to amass status-signalling possessions, greed can help us attract a mate and thus perpetuate our genetic code.
* I prefer to look at greed as a coping mechanism. In my interactions with greedy people, I have observed that many are trying to fill an inner void or solve another emotional problem.
* Many greedy people obsessively pursue wealth as a substitute for what they feel is lacking inside them. But they ignore the high price that comes with greediness…
*…the greedier we become, the more we advance on the path of self-destruction.
*…like the proverbial leaking bucket that can’t be filled, the personal costs can be high. Far too often, greed comes with stress, exhaustion, anxiety, depression and despair. In addition, it can lead to maladaptive behaviour patterns such as gambling, hoarding, trickery and even theft.
In the corporate world, as John Grant wrote, “fraud is the daughter of greed.”
* Some believe that without a dose of greed, a given person, community or society may lack the motivation to move forward. I believe that, as with most things in life, managing greed is about balance. Like all potentially destructive human drives, greed must be tempered by positive social norms, such as generosity.
* Unchecked greed can destroy the soul of humanity like a great cancer, metastasising throughout society. The victory of greed over compassion may ultimately cause our civilisation’s downfall.
* Society’s ambivalence about greed makes it difficult to “treat” greedy people. After all, many view greed and its related traits – such as ambition and material success – as desirable rather than a potential mental health problem.  It is not always easy to explain the harm caused by excessive greed…
There is still such a thing as free will. We all have a choice.
* If you can’t be content with what you have, you’re unlikely to be happy with more.
* One of the most difficult tasks for greedy people is learning to be selfish in a proper way. They need to pay attention to their inner self.  It requires persistence, patience, humility, courage and commitment. But a long-term investment in the self can be a powerful antidote to greed and other forms of addiction.

Toxic Work Environments

Toxic work environments can be dangerous, result in physical and mental health issues, and impact sustainable business results (often missed in the short term). Are they more widespread that we assume?

Poor leadership could be one of the leading causes and indicators.

Many will experience, are or would already have experienced a challenging, toxic work environment or leader at some point in their career. That can be debilitating and intense. It may also change you. It is difficult to understand pain until you’ve experienced it yourself.

* Among the top Predictors of Employee Turnover During the Great Resignation, professors from MIT Sloan and NYU Stern found (2022) that a toxic culture is 10.4 times more likely to contribute to attrition than compensation. A toxic corporate culture is by far the strongest predictor of industry-adjusted attrition.
* From a poll of 1,000 UK employees (2021), 7 in 10 Brits shared they’ve worked in a toxic environment at some stage of their career. According to Oak Engage’s Toxic Workplace Report (2023), 75% of UK employees admit they have experienced a toxic workplace culture. 87% agreed that a toxic workplace culture has had a negative impact on their mental health and 73% agreed that a toxic workplace culture has contributed to their burnout.
* According to a poll (2023) of more than 1,300 U.S. adults conducted by online career platform Muse, nearly two-thirds of workers have faced so-called toxic work environments.
* According to Talent Works (2022), the majority of women in technology have experienced toxic work environments, with 21% experiencing it frequently.
* According to one survey in India, tech workers are willing to accept lower salaries and even take pay cuts, if it means being a part of a company with a non-toxic work culture. In another one (2023), 87 per cent felt work-life balance is top priority for combatting toxic work culture and 31 per cent attribute pressure at the workplace as one of the main concerns for mental health issues.

What approaches have worked for you, to effectively manage through a toxic work environment?

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