Companies See Limited Success in Developing Leaders, According to Hewitt.

Business Editors

LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--June 5, 2002

Hewitt Associates Shows that Organizations on

Chief Executive Magazine's List of Top Companies for Leaders

Do More to Develop Leadership Reputations

While organizations have formal

Hewitt surveyed CEOs and HR executives representing 240 major U.S.-based, multi-national companies, and found that while 77 percent of these organizations have formal processes and programs to develop leaders, only 32 percent believe their organizations are effective in achieving that objective.

"Although companies may have programs in place to attract, develop, assess and reward leadership talent, it's the integration and execution of these programs that make the most difference," said Marc Effron, practice leader, Leadership Consulting Services at Hewitt Associates. "The top companies for leaders differentiate themselves by the breadth of their leadership practices and how well these programs are implemented and integrated with each other."

Attracting Leadership Talent Means First Establishing Criteria

The Hewitt study shows that 68 percent of the organizations surveyed have a defined set of qualities they look for when hiring leadership talent. However, only 43 percent of these companies consistently or often use this criteria when hiring leadership from outside the organization, and 86 percent use it when hiring from within for a leadership position.

"Attracting leadership talent is the critical first step in an executive life cycle," said Effron. "Obviously, companies want to make sure they not only hire quality leaders, but the best leaders for their particular organization. Companies need to take the time to define the leadership competencies required to meet an organization's business strategy. It's then important that each candidate is assessed using these competencies to ensure the highest degree of success. In fact, Hewitt found that companies with these defined competencies have a higher return on sales than those without."

Companies Use Range of Tactics in Developing and Assessing

Leadership

When asked how their organizations develop high-potential leaders, 67 percent of the survey respondents said internal training, 53 percent mentioned cross-functional experiences and 51 percent cited external training. The most popular techniques for middle management include internal training (68 percent), external training (44 percent) and cross-functional experiences (32 percent).

Meanwhile, companies are using a variety of methods to assess leadership behavior and ability. For example, 80 percent rely on evaluations from managers, 58 percent use peer or 360 degree feedback and 40 percent have self-assessment programs. As for the success of these programs in determining an appropriate leader for a position, 63 percent indicate they are very effective or effective, 30 percent say they are somewhat effective and 7 percent believe their assessment techniques are slightly or not at all effective.

Companies Link Pay to Performance but Have Limited Pay

Differential

Additionally, the Hewitt study reveals that most of the organizations (87 percent) are clearly linking leaders' pay to their individual performance. Specifically, these companies are connecting base pay (79 percent), annual incentives (77 percent) and long-term incentives (64 percent) to executive performance. However, only 55 percent of survey respondents say that there is a significant or noticeable pay differential between high and average performers in the same type of leadership role, while 33 percent indicate there is a moderate pay difference and 12 percent say that pay differs slightly or not at all.

"Pay and opportunity are the two biggest factors in motivating and retaining quality leadership," said Effron. "It's important that the leaders who are key to the success of a company realize that, and are there to guide the company for years to come, while the executives a notch or two below them understand that there's room for improvement."

Copies of Hewitt's survey titled, "Top 20 Companies for Leaders," will be available for purchase in July 2002 by contacting the Publications Desk at Hewitt Associates, 100 Half Day Road, Lincolnshire, IL 60069, (847) 295-5000 or infodesk@hewitt.com.

About Hewitt

Hewitt Associates (www.hewitt.com) is a global outsourcing and consulting firm delivering a complete range of human capital management services to companies including: HR and Benefits Outsourcing, HR Strategy and Technology, Health Care, Organizational Change, Retirement and Financial Management, and Talent and Reward Strategies. We provide services from 80 offices in 37 countries.

Chief Executive Magazine's List of Top 20 Companies for Leaders

Hewitt provided data from its recent leadership study to assist the Chief Executive Judges panel, comprised of world-renowned authors, professors, business executives and executive coaches, in selecting the following list of the Top 20 Companies for Leaders. Chief Executive published the list in its June 2002 issue.

1. IBM                      11. BP Amoco
2. Microsoft                12. Honeywell
3. General Electric         13. SYSCO
4. The Home Depot           14. Centex
5. Dell Computer            15. Intel
6. FedEx                    16. Citigroup
7. Pfizer                   17. Target
8. Colgate-Palmolive        18. Southwest Airlines
9. Philip Morris USA        19. Verizon
10. Johnson Controls        20. Sun Microsystems

The following Hewitt data highlights how these Top 20 Companies rate in leadership development programs versus the other organizations in this study.

Support from Senior Management

The Hewitt study finds that the more a CEO provides the necessary resources, such as time and money, to leadership development, the more effective the company is in developing leaders. All of the Top 20 Companies in the Hewitt study believe their CEOs commit the necessary resources to leadership development. In contrast, only 59 percent of the other companies surveyed feel that their CEOs provide the necessary resources. Moreover, as a CEO's commitment to providing the necessary resources declines, so do the effectiveness ratings of a company's ability to develop good leaders.

Competencies Embedded Throughout Leadership Practices

All Top 20 Companies surveyed have formal leadership programs and 90 percent have formal leadership competency models, compared to just 76 percent and 67 percent (respectively) of the other companies surveyed.

Top 20 Companies Identify High Potentials

Fifty-five percent of the Top 20 Companies report that their performance management system clearly differentiates high-potential leaders, compared to 41 percent overall. The high-potential leaders are then made aware of their status at 73 percent of the Top 20 Companies versus 43 percent of the other companies.

High-Potential Development

The Top 20 Companies effectively implement a wide variety of leadership practices. The largest discrepancies between the Top 20 and the other companies are found in experiential training. More than 70 percent of the Top 20 Companies provide cross-functional experiences versus 52 percent of the other companies. While 64 percent of the Top 20 Companies develop high potentials through job rotations, only 42 percent do at other companies. In addition, 46 percent of the Top 20 Companies offer opportunities to high potentials for global/regional assignments versus only 23 percent of other companies.

Top 20 Companies Have a High-Potential Compensation Strategy

All Top 20 Companies surveyed link compensation to an employee's individual performance. What's more, 100 percent of the Top 20 Companies differentiate pay between high potentials and average performers in the same role, compared to 54 percent of other companies. The majority (80 percent) of the Top 20 Companies report that they significantly or noticeably differentiate pay between these two groups.

"We've found that the Top 20 Companies are better than the rest in all areas of growing great leaders, from attracting and developing leadership talent to assessing and rewarding these executives," said Effron. "However, if an organization is looking to improve its leadership quality and bench strength, the best place to start is with senior-level involvement. The fact is that it's far more effective to have an average leadership program with senior-level support than a great program with no senior-management involvement."

About Chief Executive Magazine

Chief Executive magazine (www.chiefexecutive.net), founded in 1977, is the leading source of intelligence for and about CEOs. It provides information and tools addressing the unique leadership concerns of the chief executive officer. The magazine - which has a controlled circulation of 42,000 and a readership of 143,000 - is published eleven times a year by the Chief Executive Group, which produces publications and events designed to serve the needs of America's corporate leaders.