Leading companies have one thing in common – a single-minded focus on getting, developing and retaining talent.

Each year, General Electric brings several thousand new college graduates into its fold. Every time a resume comes in, Procter & Gamble runs candidates through a procession of cognitive and behavioral tests. At Colgate Palmolive, the top 500 positions are backed by a common candidate list, which is reviewed by senior management.

These leading companies all display a similar trait: HR plays a pivotal role in the healthy performance of each organization. In fact, you could go as far as to say that each displays a critical focus on attaining, developing and retaining the best talent. Furthermore, in a veritable mantra for success, employees stay with these companies and mature to become great leaders, which ultimately leads to superior financial performance.

Studies conducted by Hewitt Associates support a strong link between leadership and profitability. One such study titled Top Companies for Leaders¹ identifies three key ‘truths’ as a necessary backdrop for financially successful organizations to produce a pipeline of leadership talent. They are:

1. Active involvement by the CEO and Board of Directors;
2. Well-executed developmental programs; and
3. An unwavering commitment towards high-potential employees

The top 20 companies in this study are models for other companies that wish to improve their leadership track record. They are sincere believers of the now common refrain, “Our people are our biggest asset”, and record profits that prove it. So what do top companies do differently to the rest?

Compensation is Clearly Differentiated

Studies have consistently shown that top performers produce in value at least 100-150 percent more than average performers in similar jobs. As such, they deserve better compensation and greater opportunities than some of their less gifted colleagues. This is something top companies recognize and implement better than most.

Better performance is to be expected from the best talent, which often means they are held to a higher standard, and in return they are rewarded with better pay. According to the US Top Companies for Leaders 2005 study, 15 out of the top 20 companies said that compensation is clearly linked to the employee’s potential to advance, compared with only 38 percent at other participating companies. The differentiated pay is often executed through the use of stock options and restricted stock. At 87 percent, the use of long-term incentives is more widespread in top companies, as opposed to only 53 percent at the others organizations. Compensation systems are therefore designed to reinforce performance, while also retaining and rewarding talent.

Tracking and Identifying High-Potential Talent

Top companies are better at tracking their best talent and while only 77 percent of other companies formally identify high-potential leaders, almost all of the top contenders routinely acknowledge their leading employees. Similarly, while just over half the average companies inform the elevated status of particular staff to their employees as part of their succession planning process, 68 percent of top companies proudly communicate the outstanding progress of employees. A policy used by one top 20 company was to notify the CEO if a high-potential employee—at any level of the organization—resigns. In a bid to keep potential future leaders, the CEO then has 24 hours to make a counter-offer.

Developmental Assignments Propel Growth of High Potentials

The studies illustrated that top companies are more proactive in developing their talent base and provide these employees with greater opportunities to develop (see graph). Additionally, job assignments are more specifically designed to stretch the abilities of promising candidates, and high-potential employees are often put in charge of critical roles and given cross-functional experience to improve and gauge their abilities. One top company even encourages leaders to serve on a non-profit boards of directors, an invaluable experience that not only accelerates their development but also allows them to demonstrate skills beyond their current job responsibilities.

Increased Access to Senior Leadership

Once high potentials have been appropriately identified they should be rewarded with greater responsibility. Using occasions such as lunches, dinners, training sessions and board meetings, 19 out of the top 20 companies provide top talent with the chance to rub shoulders with management in a bid to encourage interaction between senior leaders and up-and-comers. Additionally, more than two-thirds of top companies also give top talent regular exposure to the CEO, while less than half of the other companies provide such top-level access.

Given the amount of attention that goes into developing top talent in top companies, it is no surprise that the high-potential turnover is as low as two percent. This metric is tracked in more than 70 percent of top companies—compared to 60 percent of the other companies—and some even benchmark it. In one case, bonuses of leaders are reduced if the retention rate falls below 90 percent.

In summary it can be asserted that the attention given to top talent creates an environment that breeds leaders. Since high-potential employees are the key to future business success it is in a company’s best interests to nurture the capabilities of an ambitious employee. For more information on developing your high potentials, please contact Ian Till.

*All statistics in this article come from the US Top Companies for Leaders 2005 study

¹The Top Company for Leaders study was conducted in the US in 2001, the US, Europe and Asia in 2003; the US and Europe in 2005. The ‘truths’ were collected from all studies.