Chief Executive Performance Evaluation Policy

Introduction

Although the board delegates management and administrative duties to the chief executive, this does not excuse the board from overall responsibility for overseeing the organization. This oversight includes ensuring that the right person is running the organization at the right time and in the right way. An annual performance review is one of the most effective ways for the board to carry out this duty.

A properly administered chief executive performance evaluation can benefit the chief executive, the board, and the entire organization. Out of this important process, the chief executive gains constructive feedback on his or her performance and the board has the opportunity to measure the organization’s progress towards its objectives and previously set annual goals.

The evaluation process helps to enhance the communication between the board and the chief executive. It facilitates the board’s oversight function while providing the board with a concrete opportunity to support the chief executive.

Key Elements

·  An effective performance evaluation begins with a mutually understood process. The board needs to determine the appropriate role for the board chair, individual board members, and any committee. It should also address how the chief executive will participate in the process and what kind of evaluation tool to use.

·  The performance evaluation should take into account the chief executive’s job description, annual goals and objectives, and any other relevant factors identified or approved by the board. The executive’s annual goals and objectives should be closely tied to the organization’s annual goals and objectives.

·  The evaluation should include the chief executive’s own self-assessment as well as the board’s evaluation of his or her performance. The full board needs to review both.

·  The evaluation should be conducted annually and documented in writing, particularly where the outcome is adverse and/or could lead to dismissal. In all cases, the assessment will provide a permanent record that can be referred to by both the chief executive and the board, greatly increasing clarity and certainty.

·  The assessment process should be separated from compensation (see also E-Policy Sampler: Executive Compensation) even if performance is a key element in setting or reviewing the compensation level of the chief executive. Compensation should not drive evaluation; it should be discussed independently after coming to a mutual agreement on evaluation results.

Practical Tips

·  Consider conducting the evaluation towards (or shortly after) the end of the fiscal year in order to tie annual goals to organizational performance.

·  The board should provide the chief executive with frequent and constructive feedback. Even if a formal review process takes place annually, both the board and the chief executive should communicate throughout the year to highlight early warning signs and interim accomplishments.

·  In theory, the chief executive’s annual goals should be developed in collaboration with the board. In some cases it may be more efficient for the chief executive to present the board with proposed goals for consideration.

Sample Chief Executive Performance Evaluation Policies

The sample policies discuss various aspects of the process, from how to set expectations to who should be involved.

  1. This brief statement outlines specific steps in the annual review process, as well as the role of officers, the full board, and the chief executive in the process.
  2. This policy stresses the purpose of the performance review and delegates the process to the executive committee.
  3. This policy statement defines the chief executive’s goals as the organization’s goals and provides general guidelines for the performance review.

Sample #1
This brief statement outlines specific steps in the annual review process, as well as the role of officers, the full board, and the chief executive in the process.

Annual Performance Review. In addition to ongoing monitoring, the officers will provide a specific opportunity for the chief executive to present a written self-evaluation and for board members to organize their evaluation of the chief executive’s performance and have it presented in a face-to-face debriefing with the chief executive. At this time, the board and the chief executive will agree on any specific, personal performance goals for the year ahead. The chief executive’s compensation package will be reviewed during or soon after this process and approved by a disinterested committee of the board using appropriate salary comparison data.

Sample #2
This policy stresses the purpose of the performance review and delegates the process to the executive committee.

The board monitors the chief executive to ensure that he or she is competent and effective, including conducting an annual review and appraisal of the chief executive’s performance.

The annual goals and objectives should be mutually discussed and agreed upon, and should serve as the basis for performance evaluations. The executive committee and chief executive should mutually agree on the process of formal performance reviews. The primary purpose of performance evaluations is to help the chief executive perform more effectively. Compensation increases and contract renewal decisions should not be the primary purpose for conducting the evaluation. The executive committee also makes recommendations for compensation increases and contract renewal to the board.

Sample #3
This policy statement defines the chief executive’s goals as the organization’s goals and provides general guidelines for the performance review.

Monitoring Chief Executive Performance
Systematic and rigorous monitoring of the chief executive’s performance will be measured against achievement of organizational goals and organizational operations.

  1. Monitoring is used to determine the degree to which organizational performance goals are being met. Data that do not do this will not be considered to be monitoring data.
  2. The board will acquire monitoring data by using one or more of the following methods:
  3. By internal report, in which the chief executive discloses compliance information to the board
  4. By external report, in which an external, disinterested third party selected by the board assesses compliance with organizational performance goals
  5. By direct board inspection, in which a designated member or members of the board assess compliance with the appropriate goal
  6. Monitoring will occur at a frequency and by a method chosen by the board. The board can monitor any organizational goal at any time by any method, but will ordinarily depend on a routine schedule that is negotiated annually with the chief executive.
  7. The chief executive will give top priority to ensuring timely and accurate reporting to the board for use in monitoring.

Suggested Resources

·  CEO Evaluation: Navigating a New Relationship With the Board. Mercer Delta Consulting, 2003.

·  Dubois, Philip L. “Regular Performance Reviews Show Someone Is ‘Minding the Store.’” Trustee. May/June 2004.

·  Mintz, Joshua. “It’s Lonely at the Top: Why Board Assessment of the Chief Executive is Critical to the Executive’s — And the Organization’s — Success.” http://www.boardsource.org/Knowledge.asp?ID=1.245

·  Mintz, Joshua and Jane Pierson. Assessment of the Chief Executive, Revised. Washington, DC: BoardSource, 2005. http://www.boardsource.org/Bookstore.asp?Item=168