Tips For An Effective Process

The performance of the CEO, and the relationship between the CEO and the Board, are critical
factors in successful governance and fulfillment of the organization’s mission.
Tips for an Effective Process

 Start the process with mutually understood expectations that are clearly articulated at
the beginning of the evaluation period (based on job description, strategic plan,
performance criteria, etc.).
 Commit to open and honest communication.
 Maintain strict confidentiality, because you are dealing a person’s career. Performance
issues should not become public information.
 Be sure the process positively impacts the CEO. Focus on the positive as well as areas for
improvement.
 Strike a small committee of board members to take the lead in conducting the evaluation.
Nevertheless, it is important that all Board members have input into the process (e.g.
through an evaluation questionnaire).
 The committee (or the Board) and CEO should develop the process together.
 The process should begin with the CEO submitting a self-evaluation to the committee.
 Separate the evaluation process from salary negotiations. Keep in mind that a key
purpose of the evaluation process is performance improvement.
 Be careful before involving staff or other volunteers in the process (such as through a
360° evaluation process. If the source of feedback is expanded, it is best done in the
context of an organizational review, and not just as a review of the CEO. Of course, the
CEO can decide for them if he or she wishes to seek feedback from staff for their own
personal and professional development.
 Use benchmarks of organizational success as indicators of your CEO’s performance (and
with Policy Governance, the results of the Board's monitoring activities.)
 Take into account the CEO's personal goals and needs regarding future leadership. If
you only focus on the organization's needs, then the CEO could seek to fulfill those
needs elsewhere.
 Provide a written evaluation to the CEO, but also hold an evaluation meeting with the
CEO to discuss the evaluation and ensure full understanding and future expectations.
 After the meeting, provide the full board with an oral in-camera report.
 The final step is to assess the process. Make it an aim to improve the process each year.
And, of course, it is important to remember that ongoing feedback throughout the year is also
essential. An annual evaluation is not sufficient!
The CEO evaluation process should encompass and inform two realms of performance – the
past and the future:
1. Look back. The board collects and interprets historical data to judge, and provide a context
for, the CEO’s performance. This historical review forms a basis for critical decisions about
compensation or continuation in a particular role.
2. Look forward. This helps both the CEO and the board focus on the company’s future
direction. Goal setting not only sets forth the strategic objectives for the start of the evaluation
period, but it also can enhance the ongoing leadership development of the chief executive, with
the board providing feedback on areas where personal development is needed.
These different objectives – to look back and to look forward – require separate but aligned
performance management processes and tools. Unfortunately, due to time constraints, a board
is more often likely to conduct these evaluations concurrently – reviewing the CEO’s previous
year of performance, deciding upon compensation, setting next year’s targets, and discussing
specific areas for improvement – all in a single board meeting. When the “look back” and “look
forward” objectives are not clearly delineated, neither is served very well.
When time is short, boards may dispense with developmental discussions altogether, using the
performance review to set the CEO’s future objectives. This approach is likely to
overemphasize what results the CEO is expected to achieve (such as increased revenue) over
how the CEO is expected to achieve them (driving collaboration across businesses, for
example). As a result, the CEO will not have the benefit of candid, detailed performance
feedback about his or her leadership competencies and personal impact or of opportunities for
continued development.
Guiding principles of CEO evaluation
Each company makes different evaluation choices based on its history and culture, market,
board/CEO relationship, and strategy. But whether building a new evaluation process or
revising an existing one, the CEO and board need to establish guiding principles that address
the following questions:
 Why are we engaging in this evaluation? Historically, its sole purpose may have been
to determine appropriate compensation, but, going forward, consider to what extent it
can also be used for performance planning and development. For instance, this feedback
can help the CEO align his or her future actions with the board’s performance
expectations.
 What will be measured in the evaluation? To accurately capture the depth and breadth
of the CEO’s impact, the evaluation will need to go beyond the company’s bottom-line
financial metrics. Other aspects of performance may be included, such as operational
results, customer growth and satisfaction, people development (for example, the number
of “ready now” leaders in the succession plan), and leadership competencies, such as
“inspires trust through honest communication.”
 Who will be involved in the evaluation process? If it is limited to just the CEO and the
compensation committee, the process will be inadequate. It is important to seek input
from the full range of stakeholders – board members, the executive team, and critical
customers. Multiple sources of feedback ensure more than a narrow, top-down view by
including multidimensional perspectives of CEO performance.
 What is the evaluation instrument and how will the results be communicated? The
compensation committee must decide how evaluation feedback will be collected and
how summary feedback will be communicated to the CEO. For example, some
organizations opt to hold an executive session to discuss the synthesized feedback and
invite the CEO to a one-on-one meeting with the compensation committee chair to
deliver the results.
 What is the evaluation cycle? What are the specific steps and responsibilities? In the
process of determining the timing of key steps, thought should be given to how the CEO
evaluation process fits in with business planning, compensation planning, the broader
executive performance management process, and other core business processes.
Responsibilities, actions, and time frames should be documented and evaluated for
appropriateness each year.
CEO performance dimensions and measures
CEO performance is generally evaluated along one or more of the following dimensions:
 Bottom-line impact
 Operational results impact
 Leadership effectiveness
Choosing the right dimensions is the defining moment in the process, because it will form the
basis for goal setting and the selection of metrics that will be used to evaluate performance.
Among all the decisions to be made throughout the evaluation process, this is probably the
most challenging as it raises the complex issue of the relationship between the CEO’s actions
and effectiveness as a leader and corporate performance overall.
Bottom-line impact
The CEO is undoubtedly held accountable for the company’s overall financial health and
effectiveness. This is often depicted in specific financial metrics, such as the following:
 Net operating revenues
 Net income
 Operating cash flows
 Earnings per share
 Capital expenditures
Operational results impact

This category refers to the CEO’s impact on the company’s operational results and
organizational effectiveness. Because these reflect the organization’s capacity to perform, they
are good predictors of long-term value creation. The following are among the barometers that
would be used to evaluate this dimension:
 Customer growth and satisfaction
 Operational excellence
 Company image
Leadership effectiveness
Financial and operational results have historically been the main focus of CEO evaluation, but
in an environment riddled with corporate scandals, leadership effectiveness measures are
increasingly key components. This performance dimension refers to both metrics related to
leading people as well as those things totally under the CEO’s control – his or her personal
leadership behaviors.
The board, CEO, and senior management team must work together to select the right
leadership effectiveness performance measures. The emphasis here is on the CEO’s actions that
will help drive key organizational outcomes.
Leadership effectiveness measures should be aligned with the results and competencies critical
to the organization’s success. Examples of leadership effectiveness metrics include:
 Leadership bench strength and diversity
 Improved retention (reduced unwanted turnover) in leadership ranks
 Employee engagement survey results
Examples of executive leadership behaviors include:

 Act with integrity and fairness
 Encourage open discussion and debate
 Create an inclusive environment
 Recruit, coach, develop, and retain the best people
 Foster learning, innovation, and change
 Build strong customer, board, and other key stakeholder relationships
Checklist of CEO Performance Evaluation Essentials
Procedure
 Explicit description of CEO evaluation process
 Calendar with milestones and deadlines that is aligned with the business’ broader
calendar and in sync with governance and management schedule
Roles & Responsibilities

 Clear roles and responsibilities assigned to board Responsibilities members, the CEO,
and HR
 CEO involved in each stage of process with ample opportunity for input
 Board members provide informal feedback as needed
Content
 Clear performance standards established that reflect all relevant aspects of the CEO’s
performance
 Quantitative measures established for each performance criterion
 If applicable, performance criteria encompass both the CEO and chairman roles

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The performance of the CEO, and the relationship between the CEO and the Board, are critical

factors in successful governance and fulfillment of the organization’s mission.

Tips for an Effective Process

Guiding principles of CEO evaluation

Operational results impact

Examples of executive leadership behaviors include:

Checklist of CEO Performance Evaluation Essentials

Roles & Responsibilities

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