Succession Planning: A Guide To This Vital Practice

September 07, 2023

In a perfect world, our best employees would stay with us for their entire careers. But reality can be cruel, and companies need to get their houses in order to ensure they’re not caught short when someone crucial decides to leave. Let’s look at succession planning.

If a vital employee wins the lottery tomorrow, who will take their place?

If this is a question you haven’t considered, you're not alone. According to the Society for Human Resource Management (SHRM), more than a third of HR pros have no succession plan in place. That’s a problem. Without a clear plan, successions are disorderly and prone to failure.

Succession planning ensures a smooth transition when employees leave by identifying and developing potential successors. But what is a succession plan, and how do you create one? Let’s dig in.

Key Takeaways:

  • Succession planning is a long-term strategy for developing talent for future leadership roles.
  • It ensures business continuity and improves employee retention and diversity.
  • Effective succession planning consists of seven steps, starting with identifying business needs and key competencies.
  • For the best results, succession planning should be transparent, collaborative, and inclusive.

What is Succession Planning?

Succession planning is the process of identifying employees can replace key roles and training them in advance so they’re prepared. It's a proactive way of making sure the organization is always equipped to meet its current and future needs.

As a guest said on PCTY Talks, “How do we make sure we have a bench? Who is ready to step into a role if someone leaves at short notice?”

Succession planning is about what’s next. What's your team doing well? What’s their next step? What must managers do to retain future leaders?

An effective succession plan helps you identify critical roles and create a pipeline of talent to fill them. It’s a long-term process that focuses on developing employees' skills so they can take over.

Succession Planning: Beyond the Talent Review

To learn more about succession planning and how it can level up your talent reviews, check out PCTY Talks episode “Succession Planning: Beyond the Talent Review.”

Why is Succession Planning Important?

It’s hard to overstate the importance of succession planning for your company’s future. This is especially true when you have a multigenerational workforce with leaders who might be retiring within the next few years.

Leadership succession planning promotes business continuity. It prepares new leaders to take over when the time comes and supports a seamless transition.

Ultimately, it’s about installing the right safeguards to ensure the long-term success of your organization. This affects you, your employees, stakeholders, shareholders, and even your customers or clients.

The Benefits of Succession Planning

The benefits of succession planning are far-reaching.

  • Protects leadership continuity. Company leaders may retire, receive a promotion, or leave suddenly. When this happens, succession planning ensures continuity by preparing successors in advance. Changeovers happen with minimal disruption to employees and their workflows. This maintains stability and stakeholder confidence.
  • Promotes growth and development. Succession planning prepares your employees for the roles they’re best suited to. You can help them develop the skills they need and stretch their capabilities. You’ll help them grow as individuals with a clear career path, boosting engagement and satisfaction. Then, when the time comes, they can take on their new role with confidence.
  • Highlights skills gaps. Succession planning involves regular talent reviews. They can highlight skills gaps in your workforce, as well as workflows your employees are missing (or aren’t doing effectively). You can then create a plan to address these gaps. For instance, you can create upskilling and reskilling programs. It’s a good idea to align this plan with your company's roadmap so people can see how it helps achieve the company's
  • Improves retention. A report by SIGMA found that over a fifth of employees left their jobs because they saw better growth and development opportunities elsewhere. To retain your talented employees, they need to see a future with your company. Succession planning can help. It prepares employees for the future and shows them you value them and want to help them grow.
  • Preserves knowledge and skills. Succession planning can aid knowledge transfer through mentorship programs and coaching. Current leaders can teach potential successors the skills to do the job. This helps to prevent the loss of vital company knowledge. It’s also a good way to ingrain knowledge sharing into your company culture.
  • Fosters agility. Part of succession planning is looking ahead. How is your company likely to grow? What skills will you need? How is the market predicted to change? By answering these questions, you can help your organization stay agile. You’ll have a pool of talented individuals ready for future challenges and opportunities.
  • Boosts diversity. Finally, succession planning helps you achieve your diversity and inclusivity goals. Many organizations struggle to add more diversity to senior leadership roles, in part because underrepresented groups are often left out of succession planning. Integrate your diversity goals into your succession planning efforts to help combat any biases that may be hindering diverse talent growth.

The Succession Planning Process

We get it. Succession planning is a lot of work. So, it's important to break it down into steps that you can tackle when you have time in your schedule. And, after you complete each stage, pencil in your next session to make sure you get it done.

Below, we've outlined the seven steps for successful succession planning to guide you through the process.

1. Understand Your Current and Future Business Needs

The first step is to define a succession planning framework that paints a picture of the business realties. Ask, “What are my needs now?” And how are they likely to change as the company grows? Focus on:

  • What are your company’s short-term and long-term goals?
  • Is your customer base or product mix likely to change? If so, how?
  • Does the company plan to expand to new locations?
  • What is the organization’s structure? How is it likely to change?

You also need to understand your company’s culture and the driving forces behind it. This will help you predict the effects of different successors so you can organize your list.

2. Define Your Timeline, Goals, and Key Performance Indicators (KPIs)

Based on your findings, define the goals of your succession plan. Is your aim to preserve the current culture or change it? Will you scrap or merge some positions or add new ones? Your goals will guide your plan, so make them SMART (Specific, Measurable, Actionable, Realistic, and Time-bound).

It's also important to define the timeline (and urgency) of your succession plan. Many companies plan for two types of departure: planned (such as retirement) and unplanned (like an accident).

You should prepare your strategy for unplanned departures well in advance. But you can take your time for planned successions.

Finally, you need to define the KPIs you'll use to measure the success of your plan. Here are some common succession planning KPIs:

  • Bench strength: The talent you have on your bench. Succession planning relies on having a strong bench. Talk to your colleagues about who’s performing well and who has the potential to level up.
  • Career path ratio: How much latitude employees have in your company. It’s the number of promotions divided by the total number of role changes (upward and lateral). A number above 0.7 means your company offers plenty of advancement opportunities. A number below 0.2 signals a problem. You want a career path ratio as close to one as possible.
  • High-potential (HiPo) candidates: The number of candidates with the highest leadership potential. These candidates have the ideal mix of aspiration, ability, and engagement. In a perfect world, you'll have at least two HiPo candidates for each critical role.
  • Retention: Talent retention is one of the goals of succession planning. So, you need to track your company’s retention rate. If you’re losing a lot of talent, ask why and look at what you can do about it.

3. Determine Which Positions Are Most at Risk

CRF found that over one-third of organizations have no process for identifying critical roles for succession.

Why is this a problem? Because these are the roles that have the greatest impact on your organization. A disorderly transition here could damage your reputation and even (cue alarm bells) devalue your company.

Look at your research from step one and make a list of your business’s critical positions. Next, determine which of these positions have no successors and which have a higher turnover risk. These are your "at-risk" positions.

For example, say your CFO is nearing retirement age and there are no clear successors. This role should be a priority in your succession plan.

4. Define the Core Competencies for Each Position

You’ve made a list of your at-risk positions. Now you need to define the core competencies for each one. These are the knowledge and skills people need to succeed in the role. They include hard skills (like technical knowledge) and soft skills (like leadership).

Also, think about how the role may change in the future as new technologies and techniques arise. What competencies will successors need to prepare for these changes? Planning for the future is vital to keep your company agile and competitive.

Learn More: Career Pathing: Why It Matters & How to Get Started

5. Identify Potential Successors

Your next step is to identify potential successors for each role. Try to find two to four successors for each one. That way, if your first choice can’t step in, you have others who can.

One of the most common succession planning tools is the 9-box method of sorting employees, a common workforce planning framework. This involves placing each employee in one of nine boxes according to their current performance and future potential.


Low Performance

Medium Performance

High Performance

High Potential

Box 3

Rough Diamond

Box 2

Future Star

Box 1

Consistent Star

Medium Potential

Box 6

Inconsistent Player

Box 5

Team Player

Box 4

Key Contributor

Low Potential

Box 9


Box 8

Good Performer

Box 7

Consistent Performer

When deciding which box to put someone in, you should consider a range of factors. Ask yourself:

  • What are their skills and strengths? What are their weaknesses?
  • How are they currently performing? How has their performance changed over time?
  • How long have they been in their current role?
  • How likely are they to leave or retire soon?
  • Who are they impacting with their abilities? Are they making a positive difference?

Paylocity’s performance management software has 9-box templates built in. It's easy to identify the most promising employees to groom for future leadership. You'll also get handy features to manage employee performance goals, request feedback, and ace annual reviews.

6. Create a Program to Develop Potential Successors

Next, you need to create a learning and development program to prepare your chosen successors for their future roles. Start by addressing any knowledge or skills gaps they have. You can do this with a variety of methods, such as:

  • On-the-job training and coaching
  • Mentorship from senior employees
  • Self-guided learning
  • Training courses and degrees (funded by the company)

Then, you can work on “stretching” your candidates. Give them greater responsibility and opportunities to learn new skills.

It’s also important to ask current leaders to record their knowledge in a handover document. That way, you won’t lose valuable knowledge when they leave.

7. Regularly Assess Your Succession Plan

Once you’ve completed your plan, you should assess it regularly (at least once a quarter). How is it working? Are you achieving the goals you established?

Your KPIs are a good sign of whether your plan is effective. For instance, say your bench strength is decreasing or not improving as much as you’d hoped. You can dig into the reasons behind it and tweak your plan accordingly.

The best succession plans evolve over time as you learn what works and what doesn't.

Succession Planning Best Practices: What to Remember

There are a few best practices to consider as you create your succession planning strategy. We’ve outlined these below.

Choose the Right Format

There are many ways to create a succession plan, from a simple table or chart to a multi-page document. The format depends on the size and complexity of your organization and the number of positions you’re considering. It can also depend on personal preference.

Look at different formats and how similar companies have created their plans. Then think about what will work best for you and your company.

Consult Your Leaders

As you create your plan, get input from your leaders. What is their vision for the organization? Who on their team has the most potential? What skills do they think potential successors need?

The best succession plans are a collaborative effort between departments. So, sit down with the leadership team at least once a quarter to discuss your strategy.

Be Transparent

CRF found that 43% of organizations don’t tell employees when they choose them for a succession plan. This robs employees of the chance to fully engage with the process and can lead to confusion down the line.

Once you’ve finalized your plan, communicate it to your employees and emphasize its importance.

Take it Slow

Strategic succession planning can feel overwhelming. So, break it into chunks 一 and take it slow! Schedule some time in your quieter periods to sit down and work through each step.

If succession planning is new to you, it helps to start with a trial program for one or two positions. That way, you can test and refine your processes with a smaller group of employees.

Use a Mixture of Development Methods

Use a mixture of training methods to make your development program accessible to a range of learning styles and preferences.

Diversify your training mediums with webinars, workshops, individual coaching, and microlearning courses. Store any materials in a learning management system, that way, everyone can access the training on-demand.

Walk the Walk

According to SIGMA, 45% of leaders say their company rarely follows through on succession plans. This creates uncertainty, which is bad for morale. And you risk losing talent that's ready for the next level or a new role.

So, don't just talk the talk. Walk the walk.

Succession Planning Templates and Examples

Finally, we’ve included three hypothetical examples of succession plans. You can use them to create a succession planning template for your business.

Example 1: 9-box method for identifying HiPos

Here’s a scenario: The chief marketing officer at a mid-size retail company is due to retire in five years’ time, and there are no obvious successors. Their HR manager uses the 9-box method to identify the best candidates in their 15-strong marketing team.


Low Performance

Medium Performance

High Performance

High Potential

Box 3

Louisa T

Lateef U

Box 2

Ben S

Box 1

Paloma M

Jin C

Medium Potential

Box 6

Michael J

Imani K

Box 5

Nathan W

Christina L

Nkechi O

Box 4

Ximena E

Low Potential

Box 9

Andy B

Box 8

Susan C

Chris W

Box 7

Walter A

Based on their results, they choose Paloma, Jin, and Ben, who all score high on potential and performance.

Example 2: Skills Analysis

The HR manager at a SaaS business creates the following succession plan:

The goal of this succession plan is to ensure a smooth transition of leadership by identifying potential successors for at-risk critical positions.

Positions under consideration:

  • Chief Technology Officer (Carla B) - plans to retire in four years
  • Office Manager (Graham G) - declining health

Core competencies for each position:

  • Chief Technology Officer
    • 8+ years of experience
    • Technical proficiency
    • Organizational skills
    • Strategic thinking
    • Decision-making
  • Office Manager
    • 4+ years of experience
    • Communication skills
    • Adaptability
    • Conflict resolution skills

Potential successors for each position (in order of readiness):

  • Chief Technology Officer
  1. Harold W
  2. Zuri M
  • Office Manager
  1. Mei Y
  2. Julian F
  3. Paolo D

Example 3: Learning and Development with an Inclusivity Focus

As part of its succession plan, a large tech company creates a program to develop promising talent. Their aim is to secure the company’s future by creating a pipeline of future leaders.

They use a mixture of training, coaching, and mentorship so successors can learn from current leaders. They also encourage candidates to gain experience in different areas of the business. This will give them a clear understanding of how the departments work together.

Diversity, equity, inclusion, and accessibility is at the heart of the company’s succession plan, so part of the program focuses on developing diverse candidates. They also expose candidates to a wide range of perspectives. That way, their future leaders can keep the company agile and reach a wider customer base.

Implement a Rock-Solid Learning Management System as Part of Your Succession Planning Model

Succession planning is a vital business tool. It future-proofs your business and ensures a smooth transition for crucial roles. To plan effectively, you need to identify potential successors early and develop them so they’re ready to take over when the time comes. Succession planning software can help.

Paylocity’s HR and Payroll software is equipped to help you build and execute a succession plan:

Request a demo and see how Paylocity can help you streamline your processes and nail succession planning.

FAQs About Succession Planning

What is Business Succession Planning?

Business (or corporate) succession planning is a specific type of succession plan. It deals solely with who will take over a business once the CEO leaves. A successor is often a family member but may also be a business partner, experienced employee, or external buyer.

A change at this level can have a drastic effect on the business’s direction and ways of working. So, corporate succession planning should consider what effect each option could have.

Start this process early, so successors have plenty of time to learn the skills for their future responsibilities.

How Does Replacement Planning Differ from Succession Planning?

Replacement planning is a short-term, reactive process. It solves an immediate need to fill a position. Usually, it involves listing two or three backups for critical positions with little emphasis on growth and development.

Succession planning is a long-term, proactive solution. It focuses on building a pool of talented individuals with the knowledge and skills to take over key positions.

Replacement planning can mitigate the impact of a sudden departure. But succession planning is a better long-term solution.

What’s the Difference Between Talent Management and Succession Planning?

Succession planning is just one element of a broader talent management strategy. Its emphasis is on depth and stability, ensuring business is not crippled by the loss of key employees. Its distinction is its future focus.

Other elements of talent management include:

  • Recruitment and selection
  • Performance management
  • Training and development
  • Compensation and benefits
  • Diversity and inclusion
  • Employee engagement
  • Employee relations
  • Organizational culture
  • Coaching and mentoring

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