The performance of an organisation can be influenced by many events, not all related to the efforts of a CEO. This can mean some leaders receive too much credit for success while others face the blame for poor organisational performance. Which begs the question, are CEO performance evaluations relevant?
Unequivocally, yes.
Why performance evaluations matter
CEO evaluations are a fundamental responsibility of boards in terms of meeting their fiduciary responsibilities. As well as holding the senior leader to account for their performance, it is an opportunity to refocus your CEO for the challenges ahead. And importantly, executive compensation is intrinsically linked to performance.
If it became evident that you have made the wrong decision in hiring a CEO, it is not always the result of poor recruitment. It may be an indicator of boards not having established clear expectations from the outset or regularly evaluating the CEO’s performance.
What to consider
Evaluating the success or otherwise of your leader starts with knowing exactly what measures you are basing “success” on and more holistically, what broader factors could impact a company’s performance. Some of which may be outside the influence of the CEO – whether that’s favourable conditions, market forces, or put simply, luck. Why is it important to highlight this? Think of it this way, should a CEO be fired for bad luck or rewarded for good luck?
Identifying exactly what performance indicators/targets, skills and competencies you want to measure your CEO against and what weighting or standards each holds, is complex and the results are not always presented in data or metrics – a lot will be observational.
The process doesn’t end once the evaluation is completed. It needs to be communicated with constructive feedback, to ensure expectations are aligned. While the process can make some feel uncomfortable and lead to some awkward conversations, remember that as a board you are essentially endorsing this person to continue to lead the company. Those areas where they did not perform as expected, is there an opportunity for improvement, are there areas of leadership that are coachable or do harder decisions need to be made?
Future focussed
Evaluating performance is based on past efforts, things that cannot be altered or undone. It is important to remember the purpose of appraising performance which is to positively influence and improve future performance. This puts a totally different lens on the process and the conversation.
It is also timely to prepare for the future and that includes the departure of the CEO – both planned and unexpected. CEO succession planning, even for high performing businesses, means ensuring that the next CEO transition is a successful one.
Need help?
If you are looking for a structured, evidence based and objective approach to evaluating CEO performance, then get in touch with us today. Decipher Group are leaders in executive search and selection and together with our broad human resources capability, we deliver our clients a comprehensive and independent review of CEO performance. We can also assist with all aspects of remuneration strategy, executive development and growth programmes, and succession planning.
The Decipher Team
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