When hiring chief executive officers, would it be smarter not to meet with them beforehand rather than conduct a lengthy interview by selection committee? Should the contenders be asked to submit bids, explaining what they intend to do for the organization and why they believe they can accomplish this? Should CEOs be denied incentive pay?
Wharton School Professor J. Scott Armstrong says those would be more sensible approaches than current CEO-selection procedures. And he’s not being provocative. He insists he is just following the evidence. Unfortunately, current policies are ineffective, he states in a research paper with Emlyon Business School Professor Philippe Jacquart.
A good place to start is by adopting a rule set out in 1954 by psychologist Paul Meehl: You should not meet with a job candidate until you decide to make an offer. He argued that selection committees need to analyze candidates’ skills using statistical models, rather than get into interviews where they might be sidetracked by irrelevant factors such as looks, height, weight, gender. “The worst thing is if you meet the people,” Prof. Armstrong said in an interview.
Many studies have shown how biases can lead us astray. One experiment found that when candidates for an orchestra performed behind a screen rather than in front of the evaluators, the probability of women making it through the preliminary round of recruitment increased by an astonishing 50 per cent. Height, weight and physical attractiveness can also be subject to bias. But we insist on meeting candidates and allow our judgment to override the data we have accumulated beforehand.
Not that such data are necessarily accurate. Executives are often evaluated based on the success of the business units they lead. But many factors come into play in organizational success, and it is difficult to isolate the impact of the individual leader.
Still, Prof. Jacquart feels we need to move toward evaluating skills more accurately. He points to Billy Beane’s famous “moneyball” approach as general manager of the Oakland Athletics baseball team, when he determined that statistical factors ignored by others, such as on-base percentage, were linked to success. “Billy Beane goes by the numbers. He avoids meeting people. Even when they play for him, he tends not to watch them,” Prof. Armstrong said.
One key factor to study is intelligence, which has been shown to be the best predictor of job performance, particularly in positions involving decision-making in complex situations. “Much evidence exists about factors that affect job performance. This information should be used in a structured fashion to improve reliability and to help control for biases,” the two professors write.
Candidates for CEO positions should provide sealed bids. These bids would describe what they intend to do for the organization, what relevant skills they have, how much pay they would require, how long a contract they would need, and whether they would require any payments should they be asked to resign. A screening committee would receive these bids, after it was cleansed of any information (such as gender) that might create bias. Those who pass initial screening would be assessed by professionals on traits such as cognitive ability, values and self-control. Skills such as running effective meetings and analyzing data would also be checked.
Beyond this selection process, the authors urge that hiring committees do the following:
Reduce compensation of top executives
Economists urge higher pay to attract the best talent, while organizational psychologists argue that high compensation is harmful. The two professors’ investigation of the existing research found that higher pay fails to deliver better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions. Given the status conferred by top positions, the authors feel many capable people would accept a modest salary.
Eliminate incentive payments to top executives
Incentives work only when somebody has full control over his or her job. So it can work for individual performers in lower levels of the organization who undertake a clearly delineated task, but not the top executives. There is no way to properly tie their incentive to the job, and a danger exists that the desire to cash in on the incentive will lead to unethical behaviour.
Improve corporate governance
In organizations where corporate governance is strong, compensation is more realistic and unethical behaviour less likely to occur. Too often, executives receive high pay for circumstances beyond their control – for being in the right post at the right time.
Doctors use evidence in their decisions. So do engineers. Prof. Armstrong feels managers and board members must do the same when it comes to selecting leaders.
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter