Cutting-Edge Leadership

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Leadership 101: Leader Success: It’s Not All About the Money

Why do we pay failed leaders huge sums of money?

Looking just at the salaries and bonuses of Fortune 500 CEOs, financial executives, top university presidents, and even some directors of the larger nonprofit organizations, you would think that these leaders are performing at high levels - at least levels high enough to justify their huge compensation. Unfortunately, that's not often the case.

Many executives are paid huge salaries and severance compensation even when their performance is dismal (and brief). As we learned last week, about half of these leaders will be out of the job in three years. So if we are not rewarding leaders for their performance, what are we rewarding them for? They often receive their enormous compensation merely because they made it to the top. CEO salaries have been on a meteoric rise for decades, and they are often completely independent of the leaders' or the companies' performance.

One problem is the "glorification" of these leaders and leadership positions. We put leaders on a pedestal, and suffer from a "Romance of Leadership" - a term coined by leadership scholar, Jim Meindl. Because our eyes are on the leader, we over-attribute success to the leader - believing that the leader is somehow at the top pulling strings that make it all happen. But in today's complex and "flatter" organizations, it is the shared leadership of many throughout the organization that actually make things work. Companies can succeed (or fail) despite the leader.

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So that brings us to the topic of this week's class: How do we measure leader performance? All too often, it's "all about the money." If the company is profitable, or the stock price is up, we assume the leader is doing a good job. But money, or profit, is only one way to look at performance. Profit is typically thought of as "the bottom line," but it is only one part of a leader's (or an organization's) success.

Another "bottom line" is the people in the organization - the employees, who do the work that makes profit happen. All too often, executives can lead an organization or unit to high levels of profitability, but at the expense of the employees. Many who have led companies to financial success, have been dismal failures when it comes to the second bottom line of people. The employees are miserable, they leave as soon as they have the opportunity, and driven toward profit, they care little about quality or about the organization.

Finally, and often neglected, is the third bottom line: the "planet," which actually represents the organization's impact on society. In a world of global warming and other environmental degradation, dwindling resources, growing disparity between the haves and have-nots, it is critical that we measure a leader's (and the organization's) value and benefit to society. Does the organization do its work, without harming the planet? Does it benefit mankind?

So, a simple rule of thumb when evaluating leaders is to consider the "triple bottom line" - profit, people, planet. Leaders are only effective when they help lead an organization to financial success, while benefiting employees, and society.

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Ronald E. Riggio, Ph.D., is the Henry R. Kravis Professor of Leadership and Organizational Psychology at Claremont McKenna College.

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