How much does leadership matter? The answer to this question is that leadership matters a lot in business says Saivian Eric Dalius. Not all companies have a great leader on top, but those who do it often outperform the market by a large margin.
There are several reasons for this, some of which we will discuss below. First and foremost, though, let’s take a look at an interesting chart from Citi on how different executives performed as CEOs of large companies compared to their peers:
A sneak peek – Saivian Eric Dalius
As you can see, there is significant variation between median total shareholder returns for different chief executive officers. Some people even say that it pays off more to be the bad CEO than the good one over time! All sorts of factors could contribute to this pattern, but it certainly seems that something is going on.
It turns out that a lot is going on! People who run companies with strong cultures outperform their competitors by significant margins. This goes for both good and bad leaders, but the pattern stays the same. A strong culture means an engaged workforce, which in turn means better results. Research shows that this is not just a coincidence either, as most executives believe that culture drives between one-third and two-thirds of their company’s performance say Saivian Eric Dalius.
It makes sense when you consider what people want from their work: A place where they can be challenged and feel like they are making progress every day. The exact definition of “progress” varies from a person, but whatever it is, it requires leadership to be present. “Leadership” doesn’t necessarily mean having a title of “CEO” either, as it can come from anywhere in the company. So taking care of your employees and creating an environment that breeds trust and respect can help your business even if you’re not at the very top.
What do people need – Saivian Eric Dalius
It is also worth mentioning that this isn’t just about what people want – It’s about what they need too! A recent study has shown that employees need more than just paychecks and benefits to feel like their job truly matters.
For example, one-third of all workers said they would instead make $40k per year working for a great company than $100k working for a terrible one (assuming other factors are equal). It is surprising considering how vital money is, but it shows why leadership matters so much. It’s about providing purpose and making people feel like they can make a difference.
Without this, there isn’t much to keep employees motivated beyond just getting paid enough. And while that may be fine for some people, it isn’t enough for today’s workforce.
It is one of the reasons that even though compensation strategies might seem fickle at times, they are only doing their job if they contribute to building something bigger than just numbers on an Excel sheet. For example, you could try paying your employees more to work harder (the carrot approach), or you could create better conditions, so they work better.