CEO turnover hits new high

Jan 16 2009 by Nic Paton Print This Article

Amid the bleak headlines of massive job cuts and redundancies, it is often over-looked that the number of chief executives leaving their jobs is also at its highest for a decade.

Research by Chicago-based executive recruitment firm Challenger Gray & Christmas has estimated that 1,484 CEOs left their jobs in 2008, or the equivalent of six every working day and the most since the company began monitoring the market in 1999.

In most cases Ė 623 Ė resignation or retirement, rather than redundancy, was the reason given for stepping down but, whether the truth or just a euphemism for having being fired, the figures still show just how much pressure there is at the top right now.

"CEOs are under intense pressure, they have little room for error," pointed out the company's chief executive John Challenger to news organisation CNN.

The difficulty for many CEOs, particularly those too young to have been at the sharp end during the last major recession (not to mention the fact that few, if any, will be old enough ever to have experienced a global recession), is not how to act but, simply, what to do in the face of the enormity of the current downturn.

According to CNN's Jennifer Reingold, citing Dartmouth Tuck School of Business professor Sydney Finkelstein, many top executives are either in denial or in a state of paralysis about what options, if anything, are open to them.

"Some are saying they can't believe this has happened to me; it's one part denial and another part whining. Others are just facing up to the reality that this is going on and we have to do something about it. The difference in leadership is dramatic," Finkelstein told CNN.

The inference from this is that 2009 will see even more leave-taking by CEOs, whether forced or voluntary, argued Reingold.

"It also suggests that there is room to create a new role for the successful CEO; one who understands the relative powerlessness of the job in this volatile world and who has the guts to ask others for a hand," she said.

"Large company executives might, therefore, look to the heads of smaller companies, who have long operated in a world in which they have little control over their own environments," she added.

For boards looking to take tough decisions, consultants Right Management have published a report outlining what should be the sort of triggers you should look for when it comes to making severance decisions, and how practices tend to differ from country to country.

The benchmarking study has drawn on the views of more than 1,500 HR and senior managers in 28 countries.

It found, perhaps unsurprisingly, that a reduction in workforce or an organisational restructuring are the main triggers for parting with people's services.

"The fast-changing and demanding global market is placing increased pressure on companies to compete more effectively. The subsequent result may be frequent restructuring, downsizing or cutbacks," said Douglas J Matthews, president and chief operating officer of Right Management.

"And when those initiatives are implemented, departing employees need to be supported with severance practices that are aligned with the company's sense of corporate responsibility and values," he added.

Across all regions, severance and termination policies were primarily governed by a combination of company policy and local or national law, the report found.

Nearly two thirds of the companies polled said they required by law to give a certain amount of advance notification to the employee. More than half said their company had a formal, written severance policy.

Eligibility for severance differed by region, with more than half of companies in the Americas having no minimum requirement, compared with barely a third in Europe and a broadly similar number in Asia Pacific.

Top executives earned the most severance per year of service, whether voluntarily separated (3.39 weeks per year) or involuntarily (3.52 weeks per year).

Regardless of the position or type of separation, severance was most frequently offered as a lump sum payment, Right Management found.

More than half of the companies also surveyed put a cap on the severance calculation.

Again, regardless of the employee level, the most common benefits included in a severance package were assistance programmes, such as outplacement and financial planning, continued benefits (such as healthcare and financial compensation) and, to a lesser extent, resources such as an office or company car.

Nearly three quarters of terminated employees were required to sign a waiver or release before they could access severance benefits, the research found.