International Women's Day 8 March 2024

What’s the Story?

Glass ceilings are well known. They are an invisible barrier faced by certain people in the workplace, notably women and people of colour, which slows or stops their rise to the top.

Less well known are Glass Cliffs. These are high risk business situations where women are more likely to step into the top role than men, and where the risk of failure is high.

This is not a theory, the evidence was first unmasked by the University of Exeter in 2005 (Ryan and Haslam), who coined the “Glass Cliff” term for the phenomenon.

Other studies have since confirmed the trend. Now Ryan and Haslam have conducted a meta study of all the research, which shows that the unhealthy practice continues unabated.

Indeed, they flag several current examples. One startling one is Linda Yaccarino, the new CEO of X (formerly Twitter) where Elon Musk is reported to have said he was looking for a CEO who was “foolish enough to take the job”.

Last week the FT reported on this latest Exeter study .

In addition, on 7 March 2024, a Sophie Williams book - The Glass Cliff - Why Women in Power Are Undermined and How to Fight Back, was published.

The FTSE Women Leaders Review also last week showed women now hold a record 42% of board seats on Britain’s biggest companies.

The 42% of board seats sits well with the recently new UK Listing Rule disclosure requirement to show on a comply or explain basis that 40% of board seats are occupied by women, one or more of the SID, CEO or CFO being a woman, and one or more of the board being from a non-white ethnic background.

While welcome, the review’s CEO, Denise Wilson says women still face “hyper-scrutiny” of a kind not faced by men. In fact, this chimes well with the recent book “The Authority Gap” by Mary Ann Sieghart, which summarises proof that females are much more often asked to prove their expertise credentials, suffer more interruptions and have less floor time than their male equivalents. CORPGRO commented on this some time ago. Diversity and Inclusion Article.

Why Does it Matter

Anyone accepting a top role into a known difficult situation does so voluntarily. Some might say then that this disproportionate female acceptance is not discrimination, which it plainly is, albeit of an unconscious bias type.

But other evidence says females are both less aggressive in negotiating their pay; and tend to make fewer high-risk decisions than men. So, a nomination committee seeking to de-risk a troubled situation may already have an unconscious bias toward a “safe pair of hands”; which tilts the focus somewhat toward female candidates. And maybe candidates who are less troublesome in their pay package demands too, as seen in the so called Glass Hammer effect.

The top pay issue is troublesome. Paying a top executive in a normal manner in an abnormal situation is not logical. A turnaround or high-risk business situation needs top quality skills and commitment. It is absolutely not business as usual.

To get top quality talent into a high risk or turnaround situation means framing the executive compensation package to meet the needs of the situation. Top quartile base pay, combined with sharp incentives might be needed. And that is a problem. It is hard to get a reliable view of future prospects in a difficult situation. The incentive targets and rewards on offer may be wildly volatile, and carry a high risk of a zero payout. This unreliability dents the executive’s perceived value of the package heavily.

It gets worse. A deeply troubled company often has a bombed-out share price. The available dilution allowance is rapidly consumed in these circumstances. Finding money for a cash incentive instead, when cashflow is already under strain, is tricky. On success though, the equity incentives might yield huge rewards; and so a cool down mechanic is wise, perhaps even a cap.

That said, success is far from guaranteed. So it is fair to also add downside protection in the form of Golden Parachute terms which would normally be frowned upon in a regular business situation.

Newspoint view

Framing a compelling joining package to address a tricky or risky situation is imperative. Normal levels, and mix, of top pay for a non-normal situation is illogical.

Female and male candidates alike should each be offered a compelling package with sharp embedded incentives; correctly designed.

Too often though, in the rush to get the right top talent on board, the package fails to bake-in a wind down, or “sunset” clause. That makes the needed package reset very difficult once the crisis has been fixed. It can be done, but only by negotiation with the then proven, and well rewarded, top executive. And that is not easy, or cheap.

Aside from an enriched regular market approach, a “deal-based pay” approach might be appropriate. This involves the executive team being offered a gain share incentive designed to be far ahead of regular market compensation levels on sustained success. That thinking is often seen in MBO structures.

For female appointees, the same approach should be adopted as for males. Risk commands a premium, few would disagree. The big questions though are, how big should that premium be, and for what delivered performance?

The type of talent needed to fix a troublesome business is rare. So while it is important that we continue to see talented women take on difficult top roles and delivering outsized value on success, it is more important still that we ensure that their executive compensation is fully up to scratch.

Executive Compensation and Incentive Design

Reward and Share Plans 

Remuneration Advisory and Support

ESG and Sustainability

Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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