How Companies Can Stop Employees They Don't Promote From Quitting

Losing out on a promotion is tough enough. But being passed over for a top-level position in favor of another candidate — either external or internal — can be a deal breaker for even the most loyal company soldiers.

Corporate America's top echelons are full of examples. Just last year, Ross Levinsohn was the interim CEO at Yahoo and widely expected to take the Internet firm's reins, but the company's board had another idea. Seeking a chance to pump some desperately needed energy back into the company, it hired Google vice president Marissa Mayer in July 2012 and passed over Levinsohn, who had spent almost two years with Yahoo.

By the end of the month, Levinsohn had left the company. In January, he landed the role of CEO at Guggenheim Digital Media, the parent company of Adweek, Billboard and The Hollywood Reporter.

Given the media's scrutiny of the Yahoo succession, Levinsohn's departure was likely unavoidable. But keeping top employees happy after they lose out on a promotion is an important part of protecting a company's most important asset — it's high-performing talent — and it is one that too many firms overlook. "They don't pay enough attention to it," says Nancy Rothbard, professor of management at Wharton. "Number one, because it's hard, and two, it takes some creativity."

According to Stan Kimer, president of Total Engagement Consulting by Kimer, a Raleigh, N.C.-based human resources consulting firm, ideally companies should find a fulfilling role for a highly valued executive if he or she doesn't ascend to the CEO's office, but it happens far too infrequently. "Certainly, there could be a situation where a company needs an external CEO to take it to that next level," he says. However, "it would be wonderful if the company could offer some sort of incentive to keep [the runner-up] around to provide a good mix of opinions and backgrounds. That could be a really super dynamic, but it's not that common."

More Than One Path

Kimer knows the disappointment of missing out on a promotion all too well. During a 31-year career at IBM, he tried — and failed — several times to get higher-grade jobs before ultimately landing promotions within the company. Thanks to IBM's culture, he had managers who helped guide him and cushioned his blow when he missed out on advancement, he recalls. "If a company has a good climate where they build trusting relationships between employees and managers, you can work through that."

Now, Kimer helps companies to develop skills-mapping systems to guide their employees in achieving their medium-and long-range goals, regardless of whether they are aiming for the C-suite. Telling employees what they need to fix now is easier than addressing those issues a decade down the road — but it's an exercise that many companies fail to do.

"When I'm building those structures for companies, a lot of the message [to employees] is that career development has many aspects," he says. "It's not always about going up and up and up. At times, employees should be encouraged to move laterally to a new area and learn new skills that make them even more valuable. Some employees get real rewards out of making dramatic job shifts."

Employees also require some emotional intelligence to moderate their reaction to getting passed over for a promotion, and to realize that the situation has its own possibilities for reward, Rothbard notes. In the field of systems theory, an important principle is equifinality, or the idea that a desired end state can be reached by more than one set of means. That's a critical concept for an employee to bear in mind when he or she is mapping out a career path, Rothbard says.

"Flexibility needs to come from both sides," she adds. "If an employee is in a company that has defined success in narrow pathways, then it reinforces that mindset. If your goal is the CEO position, there's only one CEO ... If [a career track] is construed narrowly, then it's harder."

Those who take a broader approach to structuring their goals are more open to creative solutions for career advancement. Rothbard cites an example from her own experience — a colleague who lost out on a promotion but gained a different job within his company after it crafted a position for him with a new title and responsibilities. The new post gave the company extra value while engaging one of its key employees at a point when departing was on his radar screen. "That's a great example of how to find a creative way to retain someone. [Management talked with the employee] about what his ideal job would be, what kinds of things would be exciting for him and found out where his goals would be met within the organization."

CEO or Nothing

Still, it's hard for some employees and employers to shake the time-held belief that getting ahead means getting promoted, with anything less than that construed as a failure.

Matthew Bidwell, professor of management at Wharton, points to another well-known example from the corporate world of a publicized succession battle: at General Electric leading up to Jack Welch's retirement in 2001. Three of Welch's top lieutenants, James McNerney, Robert Nardelli and Jeffrey Immelt, were all vying for the position, with Immelt eventually selected as chairman and CEO. Both runners-up left the company: Nardelli moved to Home Depot and McNerney departed for 3M.

In that situation, one in which the media was paying careful attention, it was all but inevitable that Nardelli and McNerney would leave GE when they were passed up, Bidwell says. But even without all of the public scrutiny, many employees may see their future at a firm as being limited when they fail to get the promotion they want and feel they deserve.

"The more [a promotion] is set up as an explicit competition and the more it's seen as an important reward, then it is seen as what [employees] should receive for their good performance," he notes. "A lot of organizations implicitly and explicitly use promotions as a reward." It's no surprise, then, that when a well-performing employee loses out on a promotion, "it can be quite damaging. The fact that you were expecting a promotion and didn't get it can be a signal [that you] are not valued, and that limits [your] advancement."

Companies can minimize that damage by clarifying what additional experience a runner-up might need to have in order to eventually make the leap to a top position. "You might be senior vice president of sales and have no development experience, so [the company] wants you to be a senior vice president over a brand before becoming CEO," Kimer says.

Another option is helping a person find a CEO position with a major customer or supplier — a tactic IBM often used, according to Kimer. "Planting employees in CEO roles at other companies is a good business strategy. If employees go to those companies and have good feelings about the move, it can help make supplier or customer relations easier for those entities."

A 'Great Problem'

According to Beth Carvin, CEO of Nobscot, a Honolulu-based human resources software development company, getting passed over for promotions is a frequently mentioned reason for leaving a firm in the exit interviews her company conducts. Companies face a double-edged sword when they want to provide advancement opportunities for their strongest employees: If they have four good internal candidates for an open position, then 75% of the applicants are going to be upset when their name isn't picked.

Communicating immediately with employees who aren't promoted—and doing so before the promotion is announced—as well as offering suggestions about how they can grow and develop are positive steps. But Carvin also suggests that internal mentoring programs can be a great way to give employees additional attention and support if they don't get the job they are aiming for.

A mentor, for example, can help employees understand their strengths and weaknesses and guide them toward applying for the right types of jobs within a company. "A manager cannot always do that type of coaching," she says. "As a manager, the employee works for you, and you're not thinking of ways they can move away from [your] department. The mentor can be that outside set of eyes, helping employees see strengths and weaknesses and introducing them to new people or skills."

Most of Carvin's suggestions for eliminating runner-up turnover are inexpensive for companies to implement—if managers are willing to take the time to instill the culture necessary for the systems to succeed. "This is one of the great problems that is easy to solve. It's not a big deal to make sure promotions are communicated to everyone involved, and it's not hard to make sure that you're taking that extra bit of time to explain what skills and experience the employee could work on in order to win the next one. Thinking things through, communicating with employees, training managers and implanting a mentor program: Those things are not super difficult."

Pitfalls of External Hires

For those who have been a runner-up to an external candidate, enjoy this bit of schadenfreude: External candidates tend to perform poorly and have higher exit rates than their internally promoted counterparts, says Bidwell, who has done research on this topic.

"From my perspective, external hiring is dicey, period," he notes. "We all systematically underestimate how hard it is to transfer skills from one organization to another. There's a lot of learning about an organization that [needs to take] place that makes people not effective."

Sometimes, however, a board or hiring manager may feel like they have no choice but to go to the outside. At Yahoo, where sales had been suffering and the company's identity seemed lost, the board likely felt it had to make a drastic change.

"An inside hire would have signaled business as usual, and the company was on a downward trend. By hiring outside, they were signaling change and hoping that some of the Google aura would rub off on them," Bidwell points out. CEOs are often viewed symbolically, he adds, and in cases like Yahoo's, "an external hire sends the right signal.... Sometimes, you want new skills that are lacking in an organization, but it's still a tricky integration."

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