When I met with the CEO of a Fortune 1000 technology company last year, the CEO told me that he and his direct reports had just completed their annual talent review of up-and-coming leaders within the company. Retention of top talent was a high priority, and the CEO gave the example of Joe Allen (not his real name). The strategy included giving Joe a huge raise and assigning him to a high-visibility special project in addition to his demanding day job. These actions, the CEO said, would ensure Joe didn't become a flight risk.
This is a strategy that many companies use to retain high-potential leaders. The problem is that these retention strategies can backfire, and they're often contributing factors in the voluntary departure of high-potential leaders.
Renowned psychologists Edward Deci and Richard Ryan developed self-determination theory which focuses on different types of motivation. Further studies by Deci confirmed that large increases in extrinsic rewards, such as a bigger salary, actually decrease intrinsic motivation and engagement. Salary is a source of dissatisfaction if it's perceived to be lower than one’s peer group, but never a source of satisfaction and engagement once it exceeds a threshold level. Increases above that threshold become the new taken-for-granted status quo. In addition, the higher salary often stimulates an external job search because it can be used as a bargaining chip to jump to an even higher salary.
As for putting these leaders on high-visibility special projects, this too can backfire. Most leaders are in demanding jobs already and can easily feel under-appreciated and taken advantage of when assigned to special projects. Case in point is Joe Allen. He left the company six months after my conversation with the CEO. So then, what can a company do to engage and retain its high potential leaders?
A proven approach is to maximize the amount of on-the-job learning and growth. Based on extensive experience in the areas of executive coaching and leadership development, my company, Caliper, a talent management consulting firm, has identified three core elements of effective on-the-job experiential learning and growth.
1. Set a stretch objective
This process begins with setting a stretch objective that contains clear action items, is outside of your comfort zone, relevant to your career goals and time-sensitive.
It’s important to know the difference between a goal and stretch objective: The latter is the plan or set of stepping stones to achieving goals which relate to aspirations and vision. In setting stretch objectives, leaders will be maximizing an employee's full potential and gaining incentive to further develop their skills, without working on an outside special project that would spread them too thin.
2. Take action
Next, it's important for leaders to take action and make the proper steps to achieve this stretch objective. Leaders should also make sure their actions are in conjunction with their organization’s values or mission while achieving their stretch objective.
Once leaders take action, it’s critical to engage in self-reflection to identify “lessons learned” from the experience. The best way to do this is for the leader to ask “learner” questions rather than “judger” questions. Here are some examples.
Judger: Who’s to blame?
Learner: What's my contribution to this problem?
Judger: How can I prove I’m right?
Learner: What are the facts?
Judger: Why is this person so clueless and frustrating?
Learner: What is the other person feeling, thinking and wanting?
Judger: Why did my boss overreact to the way I handled that situation?
Learner: Even if he did overreact, is there a legitimate takeaway from his feedback?
Last, leaders should actively seek real-time feedback from colleagues. All leaders, no matter how effective, have blind spots. Individuals perceive actions differently from their colleagues.
When these mechanisms of learning and self-reflection are incorporated into special projects and demanding day jobs, there's a measurable ROI in terms of higher levels of engagement and retention. Next time you want to engage a high potential, rethink giving them a higher salary or additional projects and use this approach to actually engage with them on the job.