The sheer amount of influence a Chief Executive Officer wields over a company makes it challenging to receive objective feedback. Therefore, a company must have a well-thought-out feedback mechanism in place.
A well-designed and implemented CEO performance evaluation process can enable the board and the CEO to understand each other’s expectations clearly. Since CEO performance directly influences the success and financial results of a company, the board of directors must set performance standards and then objectively and fairly evaluate the performance of its CEO against those standards.
Evaluating a company’s CEO is one of the most critical responsibilities of a board. Still, it could also be the most challenging. This is because a unique relationship exists between the CEO and the board, and the evaluation of CEO performance can strengthen or jeopardize this relationship.
Revamping your evaluation process and getting it right will bring your company closer to its goals. This article provides a pathway to excellent CEO performance evaluation in the following actionable steps.
Clear-cut expectations form the basis for all great performance relationships. Therefore, your policy document should mandate CEO evaluation, establish its schedule and timelines, and address the relationship between assessment, personal growth, and compensation.
An excellent evaluation policy considers all the necessary touchstones. Most boards tend to focus on the CEO’s ability to meet financial goals. In the process, they overlook other things, such as the CEO’s influence on the culture of the company, their strategic planning abilities, and other facets of leadership that bring about the development of a well-rounded company.
Meeting financial goals should not be the lone marker of a successful CEO. If the CEO is not achieving well in most or all the other categories, productivity will ultimately decline.
Your company should categorize critical performance areas and key performance indicators based on your goals and objectives. However, a holistic evaluation of a CEO’s performance will generally cover expectations around Effective Communication, Financial Performance, Human Resource Management, Leadership, Personal Qualities & Aura, Strategy, and relationship with the board.
The evaluation policy should also feature a performance rating to indicate the CEO’s performance, from poor to excellent.
Even though the entire board should agree on the process and participate in the whole board discussion of the results, the specifics of the process might require the delegation of the task to a select number of people, depending on the company’s needs.
Your company might consider setting up an ad-hoc committee for this purpose. This committee considers the details at length and submits a report of its findings to the board.
Some boards find the use of consultants with expertise in CEO assessments more beneficial due to the complexities of such processes in their company. Every company should determine what works best for it. However, it would help if you gave precedence to techniques that cater to biases and provide checks and balances.
The CEO has a lot to contribute to the evaluation process as a peer and a colleague. Therefore, ongoing communication is critical.
It is natural for the CEO to feel defensive or anxious. From the beginning, the board should strive to minimize those feelings by helping the CEO clearly understand what will happen, when it will happen, and how the outcome will enhance professional growth and effectiveness. This approach makes the CEO comfortable, encouraging, and optimistic about the process.
You may collect data to inform the board of the CEO’s progress against set objectives at regular intervals. If the board can furnish information to the CEO on their performance on an ongoing basis, the CEO can correct any performance issue mid-course.
A CEO self-evaluation should also be a part of the review process. Self-evaluation provides an opportunity for the CEO to share significant accomplishments for the year and perspectives on their own performance.
These conversations with the CEO will help actualize a crucial element of the evaluation process—to interpret and provide actionable information.
An effective executive evaluation process is designed to systematically gather information about the CEO from various sources.
Deciding who completes the survey is essential. For example, typical respondents could include the CEO’s direct reports, a sampling of middle managers, a random group of junior employees, etc.
The survey should be tailored to each of the stakeholders. Questions that would be difficult or impossible to answer by stakeholders should be avoided. Also, you should establish a confidential process to ensure the provision of candid feedback, making sample size critical.
Your company could also survey front-line staff or use annual employee satisfaction or pride surveys for insights into the organization’s overall culture.
The process can be divided along the lines of feedback surveys, analysis of data, and a series of interim meetings to clarify and communicate results. Ultimately, the process should end with a formal evaluation meeting with the Board and CEO.
By the time this final meeting takes place, the performance critique is essentially complete. The subjects of agreement and disagreement have been identified. The CEO will then have a chance to develop an action plan to address organizational performance and personal development questions. These actions maximize the productivity of the final evaluation meeting.
So the evaluation is complete, now what? First, speak with the CEO about the results. Then, even if the results are all positive, sit down and have a conversation regarding any trends you discovered during the evaluation process. On the other hand, if there is room for improvement in any area, specify the ways the board would like to see the CEO progress over the next assessment period.
The debriefing should be systematic to achieve the best results. For example, the first talk should involve two directors discussing feedback with the CEO in private. This allows the CEO to absorb and respond to the review in a less threatening and high-pressured environment. In addition, the presence of a second director ensures that the feedback is communicated clearly and limits the possibility of one director’s personality clouding the process.
The other talking stage involves repeating and elaborating the feedback in a full board meeting. The full board meeting provides a forum for the CEO to respond to all directors and ensure that the earlier information is accurate and reinforced.
Essentially, CEO performance evaluations should not be about nit-picking. Instead, they should focus on getting a clearer view of a CEO’s overall performance and understanding how this affects the company’s future. CEOs must receive specifics, so they are clear about reacting to the process. In addition, give them a chance to respond to the results, as they may shed some light on their approaches to the topics at hand.
The actual value of a CEO evaluation is not in the individual’s ratings or scores but the platform it provides for the CEO to enhance their performance through ongoing personal development.
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