Robustly Measuring the CEO

The Board's Expanding CEO Performance Review

(Originally appeared in the November 16th, 2022?'Across the Board'?digital publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 28,000+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics - sign up?here )

I have?performed and?built processes for?quite a few CEO performance reviews over the past decade, in most cases requested by Boards attempting to gain deeper perspective into not only the CEO's performance, but also?gain insight into?what's?actually happening within their organizations under the CEO's leadership. For Directors, gaining?the proper?"Boards-eye"?view of their CEO?along with directly-linked outcomes?within the organization?is an important integrated study to perform. When done correctly, Boards gain incredible insight into the performance and risk levels deemed acceptable to the CEO. The question remains, however,?are the majority of Boards performing CEO reviews correctly? Have they previously?set the right expectations with the CEO? Are Boards measuring the right CEO indicators? Do the points being evaluated actually benefit the organization? What about the?Board?enacting a remediation plan to corrrect?unacceptable CEO performance?areas?

Although effective and deeper CEO reviews are trending in the right direction in terms of agreed usefulness, many Boards still view them as monolithic exercises with superficial benefits, preferring to simply address what are only?deemed as high-priority areas. In the eyes of many shareholders and stakeholders, this myopic view of?CEO performance reviews needs to change. Fast.

While still in the late?throes of the pandemic in 2021,?I wrote an article titled?'The Great CEO Swap Out' ?addressing the relationship?between the lowering of pandemic restrictions and the increasing of CEO changes being made. This forecasted?trending is now being realized as Boards initially hesitated?to make CEO changes until after the pandemic - enough risk was already being managed during this time. Now we see the increasing trending of CEO swap outs as Boards get back to (somewhat) normal operations. In a larger amount of cases than expected, many CEOs were caught off guard by the Board's decision to let them go - presumably due to poor Board communication and lacking?expectation setting. (By the way, if your CEO is surprised by their termination and you are on the Board, you are not performing your role correctly!)

It is no secret that a main responsibility of the Board is to?"hire & fire"?the CEO. Mature?Boards also understand the importance of?cultivating?and?supporting?all CEO performance management areas - points in which a Board should base?their?measurement and evaluation criteria... and hopefully link?their CEO's overall compensation model.

Fortunately, most CEO compensation models are pretty straightforward and follow a (fairly) predetermined scale, albeit with included incentives, possibly plateaus, which can vary by organization size and industry. Tying this to?performance assessments?is also fairly straightforward, assuming the Board has previously defined the desired company performance.

Following are some important?evaluation areas I find to be deeply?meaningful in assessing a CEO within an end-to-end, repeatable evaluation and compensation?process:

• Financial Performance: Is the company meeting its expected and agreed financial?performance? (the ability to realistically forecast and meet financial goals + notify of any future deviations in a timely manner)
• Mission Alignment: Is the organization meeting its customer and employee expectations and?obligations??(It is a great practice to link the organization's goals?directly to the mission?- this provides an?effective mechanism?to ensure the delivered goals are in direct support of the organization's?agreed mission)
• Talent Development: Is the overall knowledge base in the company increasing? Are needed and new expertise areas being filled??(just as the responsibility of the Board includes developing the CEO, the CEO's responsibility includes developing organizational talent)
• Board Partnership: Is the CEO truly partnering with the Board? (actively including the organization's?Directors in important decisions + leveraging the Directors as a sounding board)
• Values & Culture Impact: Is the CEO able, willing, and actively infusing?the organization's values throughout all endeavors to protect and elevate the culture? (deeply understanding of relationship between culture & risk + actively ensuring the values are being?'lived'?within the organization)
• Innovation Alignment: Is the CEO able to simultaneously keep focus on the organization's vision while not losing sight of?the mission? (successful CEOs understand the needed efforts on company?vision, commonly tied to the organization's?innovation )
• Relationship Building: Does the CEO cultivate relationships internally and externally to the organization? (relationships are the life blood of most organizations - however, this is rarely monitored or measured)
• Additional Consideration Areas: Additional CEO performance review?areas can include?ESG ,?risk ,?human capital ?(HC), and many others. Does your organization or industry emphasize specific wants or needs? (today we have many important?optic?areas?as they?relate to public perception - these should be considered and?measured)

These example areas should outline?the?qualitative?aspects of a robust CEO evaluation and performance review?as well as the equally-important?quantitative?aspects of these review areas - this is what makes them measurable along with the ability to formulate trending.

With the Board’s input and the CEO’s alignment, a percentage assignment for?each of your decided performance criteria measurement points could indeed make up the entire incentivization and?compensation model. This is exactly?how I do it. In some cases, the overall financial performance will directly affect all or most criteria areas as related?to payout amounts, as you would imagine.

Increasingly, Boards are moving towards CEO performance reviews not taking place on a once-annually schedule, but rather as an ongoing, consistent process with predetermined evaluation points along with their trending.

Surveys across the organization still remain a popular and effective means of evaluating certain indicators within a CEO's leadership purview, however, care must be taken in the Board's assumptions of this data as it relates to recent, more direct corporate mandates?following a period of recognized?'activist employee'?appeasement?globally (a likely topic?for a future article).

When evaluating a CEO holistically?across multiple measurement areas, Boards have the ability to offer great guidance, initiating?what is hopefully?a valuable and ongoing process with the CEO.

Is your Board robustly measuring the CEO?

Reach out ?to learn more?through?our?Board Director Education & Certification program , plus?Consulting &?Advisory ?offerings,?and?International Speaking Tour ?topics.

Mark A. Pfister - Non-Executive Director |?CEO |?Chief?Board Consultant?| Corporate?Strategist | Board Macro-Influencer?| Speaker?| Author - www.PfisterStrategy.com

About the Author:?With a strong focus in Strategy, Governance, and Technology / Cybersecurity, Mark A. Pfister is CEO & Chief Board Consultant of M. A. Pfister Strategy Group, an executive advisory firm that serves as a strategic advisory council for executives and Boards in the public, private, nonprofit, and private equity (PE) sectors. He is also Chairman & CEO of Integral Board Group, a specialized Board services & consulting company, as well as Founder & CEO of the?International Board Director Competency Designation?(IBDC.D) education and certification program, a Board Director certification course recognized globally. Mr. Pfister is a?'Board Macro-Influencer'?and his success has been repeated across a wide range of business situations and environments. He prides himself on being a coach and mentor to senior executives and Directors. In Board Director circles, Mr. Pfister has earned the nickname?'The Board Architect’.<< read full bio?here ?>>

____________

Sponsored Advertisements?+ CPE Credit Opportunities

Advertise With Us

Have something that could benefit the?'Across The Board'?community and further elevate leadership? By all means,?click ?for audience engagement details,?pricing, and multi-article discounts. Get your coveted offerings in front of the premier curated group of 28,000+ Board Directors, Board Advisors, C-Level, and Business Leaders in over 70?countries. The right audience makes all the difference!

____________

Board Education?& Certification

...we have added numerous support offerings in the IBDC.D program to make you more successful!

____________

____________

Have Mark join you on his?International?Speaking Tours?

Also available in online / video conference formats

'Becoming an Exceptional Board Director Candidate '?Learn the proven and effective steps to plan and implement your Board Director strategy. Experience how these achievable & focused efforts help you convey the expertise and confidence needed for serious Board Director / Board Advisor consideration (Available as?a?speaking engagement and/or an?education?&?certification course ).

'Building an Effective Board For Your Company '?shows business owners and leaders the immense value of creating or rebuilding an experienced?'go-to'?Board of Directors or Board of Advisors - and most importantly, how to do it via a step-by-step roadmap. Make your company soar with the right foundational elements of an effective Board. (Available as?a?speaking engagement ?and/or?consulting engagement ).

'Customizable Board of Directors and Leadership Topics '?With a passion for teaching, collaborating, and sharing information, Mark A. Pfister has joined the stage as a keynoter, sole presenter, moderator, and panelist on countless speaking engagements on the topics of strategy, governance, leadership, and Board Directorship. When organizations search for a speaker to leave a lasting impression, Mr. Pfister is frequently considered due to his combination of experience, presence, and ability to make a true connection with audiences.?Have a topic you want to address? Reach out to discuss.?(Available as?a?speaking engagement ?and/or?consulting engagement ).

'The Strategy of Strategy '?Guides Boards and audiences through the 2500+ year history, evolution and next phase of formal Strategy -?'Amorphic Strategy.'?Learn why strategy is so relevant to you personally,?your organization, and your role as a Board Director. Build a viable strategy and?experience how these focused efforts will help you and your organization thrive and reach full potential?(speaker video ).?(Available as?a?speaking engagement ?and/or?consulting engagement ).

____________

Here's Some Additional Reading

The Compliance Shepherd

The?Continuing?Manufacturer Uplift

The Global Director vs. the?Local?Director

The Valuation Expectation

Governance During Inflationary Periods

The Poison Pill Defense

See all articles?here

★???Join Our Mailing List ???★

____________

"Get Quoted"

Want to be quoted in an upcoming?'Across The Board'?article on a topic you are passionate about? Over 200 experts have done so to-date. Propose an article topic or let us know your expertise area?and let's work through the details.?Reach out ?to get your name and company in front of the premier curated group of global Business Leaders, C-Level, Board Directors, & Board Advisors - go ahead, make a name for yourself!

Also, explore the possibility?of providing an article quote and supportive?advertisement ?simultaneously - these get the best traction and response.

____________

Copyright ? 2022?All rights reserved.