Evaluating CEO / Executive Director Performance

Formal evaluations of a CEO’s performance and the results achieved under that individual’s leadership is a critical board responsibility.

The process should involve three stages:

establishing evaluation targets at the start of the year;
reviewing performance at midyear; and,
assessing results at the end of the year.

Just before the start of the year, the CEO and his or her direct reports should work with the board to develop the annual strategic plan establishing the company's short-term and long-term objectives. Finding the right objectives is a critical part of the process.

Many organizations have built their CEO's objectives and compensation package around achievement of strategic priorities. Although essential, such measures fail to take into account such important responsibilities as the CEO's plans for his or her own succession, lobbying or stakeholder relations efforts, involvement in trade associations, efforts at internal communications, leadership skills, and success in employee relations.

The most telling evaluations, therefore, include both strategic and operational objectives. Best-practice organizations tend to keep their lists to between five and ten objectives. In addition, it is a good idea to define carefully at least three levels of performance for each objective -- poor, acceptable, and outstanding.

A common problem is that boards often rely too much on the CEO's self-evaluation. Self-evaluation is an essential part of an effective performance appraisal, but it is by no means sufficient by itself. Clearly, individuals being judged on their performance may have many reasons to be biased in the way they rate themselves. For example, a CEO may purposely lower his/her self-evaluation, preferring to be "pulled up" by his board's evaluation rather than be "put down." Self-assessment data must be balanced by other information from other sources.

Once the objectives are defined, the CEO must translate them into a set of personal-performance targets and specify how his or her progress will be measured against each. The CEO then shares these targets and metrics with a committee of the board -- normally, a human resources, compensation or governance committee. This committee then makes recommendations to the full board, resolving any differences between the perceptions of the CEO and directors regarding objectives.

This committee also establishes the financial rewards, as may be applicable, that will result from meeting the targets. Committee members must collaborate with the CEO to ensure that targets are realistic but challenging. When the CEO and committee members agree on objectives and measures, the committee presents them to the full board for discussion and final approval.

Next comes the midyear review -- which, like any midyear employee review, is a chance for the board to assess whether the CEO is on a course to meet or exceed objectives and, if not, to determine where the problems lie. The midyear review encourages directors to act before minor problems become major ones and ensures that the objectives as originally framed are

still relevant. Such reviews may need to occur more frequently than once a year when conditions or opportunities change rapidly.

The final stage of the CEO's evaluation should take place at the end of the fiscal year, when the board's compensation committee compares the executive's actual performance against the targets and determines the compensation it will recommend to the full complement of outside directors. Typically, this stage starts with the CEO completing a written self-evaluation that gauges his or her performance over the year.

Individual board members should also complete a short questionnaire assessing the CEO's performance. The questionnaire should combine open-ended questions with those that use a rating scale. Rating scales make it easier to compare different board members' evaluations and highlight clearly where perceptions vary. Open-ended questions allow people the flexibility to consider factors that fixed scales and targets may overlook.

The committee should also collect and consider pertinent outside information, such as perceptions of the CEO by direct reports, other employees and key stakeholders. Using all this material as background, the committee should then prepare its recommendation, and the outside directors should meet to discuss and approve a final result, including, where appropriate, the corresponding compensation package.

In many organizations, the response to all of this information from outside directors to the CEO is oral and informal. Directors often consider the evaluation process more effective when board members give the CEO written feedback as well. Committing thoughts to paper forces deeper reflection and greater clarity. It also gives CEOs something concrete that they can review at their leisure after the meeting. Written appraisals also ensure that every director is heard -- not merely those who are the most vocal.

CEO Evaluation Process and Tool

In this model, because of the uniqueness of an organization’s performance criteria, leadership effectiveness is the primary focus of the assessment model and relies on three key components:

Strategic Leadership: leads the development of appropriate strategies for the organization and achieves the commitment and support for these strategies from the Board and Staff;

Organizational Stewardship: sets the “tone at the top” in terms of organizational reputation, ethics, compliance, stakeholder relations; and,

Council Relationships: works collaboratively with the Board, communicating information in a timely manner to ensure full and informed consent about governance matters.

A key issue that needs timely resolution is confirmation of those who will be participating in the process and providing feedback, particularly given significant staff changes in recent months.

Based on personal observation and where applicable, CEO performance is assessed over the past year using the following assessment scale:

Rating / Performance Rating / Performance Standards
1 / Unsatisfactory /

Inconsistently meets expectations.
Level of accomplishment is inconsistent.
Improvement is required in order to perform job requirements and functions.

2 / Developing /

Generally meets expectations.
Level of accomplishment is consistently improving.
Demonstrates the potential to perform job requirements and functions.

3 / Meets expectations /

Consistently meets expectations.
Level of accomplishment is consistent.
Demonstrates the ability to perform job requirements and functions.

4 / Exceeds expectations /

Consistently exceeds expectations.
Level of accomplishment is consistently beyond expectations.
Demonstrates mastery of job requirements and functions.

N/A / Does not apply /

Am not in a position to be able to assess performance in an informed manner

ASSESSMENT OF CEO LEADERSHIP PERFORMANCE
Strategic Leadership: leads the development of appropriate strategies for the organization and achieves the commitment and support for these strategies from the Board of Directors, Management and other stakeholders.
1. / Delivers satisfactory results on key corporate objectives and personal performance plan objectives. / 1 / 2 / 3 / 4 / N/A
2. / Ensures appropriate mission and goals are in place and understood to ensure future strength and viability. / 1 / 2 / 3 / 4 / N/A
3. / Develops and implements appropriate strategies and action plans to ensure achievement of goals. / 1 / 2 / 3 / 4 / N/A
4. / Proactively ensures issues are identified, solutions are determined, and appropriate action is taken on major problems facing the Board. / 1 / 2 / 3 / 4 / N/A
5. / In accordance with the strategic direction of the organization, appropriately assesses and responds to situations and requests by aligning actions to achieve objectives and utilizing time and resources effectively. / 1 / 2 / 3 / 4 / N/A
6. / Breaks down a situation and identifies underlying issues, develops options for solutions in consultation with others and either acts on or delegates and follows up on chosen solution. / 1 / 2 / 3 / 4 / N/A
7. / Creativity / innovation: improves performance by developing new approaches and ideas consistent with organizational objectives and service needs and assists and encourages others to do the same through original and creative thinking. / 1 / 2 / 3 / 4 / N/A
8. / Thoroughly gathers information and insight needed to provide greater clarity and understanding to support effective decision making through investigation, interviewing or research. / 1 / 2 / 3 / 4 / N/A
9. / Makes decisions that support organizational priorities in a timely manner based on analysis, knowledge, experience and judgment and takes accountability for decisions using common sense, values and fairness in keeping with policy and legislation. / 1 / 2 / 3 / 4 / N/A
10. / Expresses oneself clearly and effectively both verbally and in writing; adapts communication appropriately for the audience; listens attentively and ensures understanding of all parties. / 1 / 2 / 3 / 4 / N/A
Organizational Stewardship: sets the “tone at the top” in terms of organizational reputation, ethics, compliance, and stakeholder relations.
11. / Ensures that an adequate management succession planning is in place. / 1 / 2 / 3 / 4 / N/A
12. / Ensures effective development of management personnel / 1 / 2 / 3 / 4 / N/A
13. / Promotes and models teamwork throughout the organization. / 1 / 2 / 3 / 4 / N/A
14. / Acts to persuade convince or influence others in order to impact or effect. / 1 / 2 / 3 / 4 / N/A
15. / Is able to negotiate mutual resolves and reach agreement by proposing or accepting sensible alternatives. / 1 / 2 / 3 / 4 / N/A
16. / Possesses required familiarity, awareness and understanding gained through study and experience. / 1 / 2 / 3 / 4 / N/A
17. / Takes personal responsibility for dealing with and / or anticipating / resolving issues and concerns; works to respond to needs, inside and outside the organization, in a timely and professional manner to further the organization’s objectives, always striving for excellence. Accomplishes tasks through concern for all aspects of the job, no matter how small. Checks processes, details and tasks to ensure accuracy and professionalism and follows up. / 1 / 2 / 3 / 4 / N/A
18. / Takes prompt and appropriate action to accomplish objectives beyond what is required; being proactive. / 1 / 2 / 3 / 4 / N/A
19. / Adequately measures and manages the performance of Management. / 1 / 2 / 3 / 4 / N/A
20. / Promotes a culture of integrity by demonstrating and promoting the highest possible ethical standards. / 1 / 2 / 3 / 4 / N/A
21. / Effectively enhances the image and reputation of the Board. / 1 / 2 / 3 / 4 / N/A
22. / Ensures that the Board fulfils a responsible corporate role in society. / 1 / 2 / 3 / 4 / N/A
23. / Develops and maintains appropriate and effective working relationships with key stakeholder groups, including the Ministers, employers, workers and the broader community. / 1 / 2 / 3 / 4 / N/A
Board Relationships: works collaboratively with Council, communicating information in a timely manner to ensure full and informed consent about governance matters.
24. / Effectively communicates with the Board of Directors on the status and results in achieving the Board’s plans, strategies, policies, programs and services, along with any action required to address new or emerging issues. / 1 / 2 / 3 / 4 / N/A
25. / Has the confidence and support of the Board of Directors / 1 / 2 / 3 / 4 / N/A
26. / Ensures appropriate engagement of the Board of Directors and its committees to ensure effective oversight. / 1 / 2 / 3 / 4 / N/A
27. / Respects the role, authority and independence of the Board of Directors. / 1 / 2 / 3 / 4 / N/A
28. / Helps to engender a constructive working relationship with the Board of Directors based on a balance of partnership and accountability. / 1 / 2 / 3 / 4 / N/A
29. / Uses tact and diplomacy when dealing with and interacting with others; works cooperatively and collaboratively with others and builds effective relationships both inside and outside the organization. / 1 / 2 / 3 / 4 / N/A
30. / Is receptive to the questions and probing of Board of Directors members in fulfilling their due diligence role. / 1 / 2 / 3 / 4 / N/A
31. / Acts on Board of Directors directives and/or requests in a timely and complete manner. / 1 / 2 / 3 / 4 / N/A
32. / Invites and values Board of Directors input without feeling threatened. / 1 / 2 / 3 / 4 / N/A

Overall leadership rating of CEO performance: In light of the criteria used to assess the leadership of the CEO, how would you assess his overall performance (please check  one):

Weak: performance falls short of what is necessary, having demonstrated serious instances where effectiveness needs to be improved to consistently meet leadership expectations and requirements.

Needs Improvement: performance generally meets what is considered necessary, but there are some significant areas that require improvement to consistently meet leadership expectations and requirements.

Acceptable: performance has been effective, generally meeting leadership expectations and requirements.

Strong: performance has been highly effective and is generally superior to leadership expectations and requirements.

Comments: Please provide additional insights and comments on any aspect of the CEO’s leadership in the space provided below:

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