Adopting a more formalised, structured approach to CEO assessment gives boards a greater likelihood of optimising their relationship with the CEO, while improving the overall performance of the organisation.
Too often, CEO assessment is limited to judgments regarding an organisation’s financial achievements or disappointments of the previous year. While this is important, it is only part of the story. These judgments tend to dwell too much on the past. In reality, the most significant outcomes produced by assessing the CEO should relate to the future of both the organisation and the CEO. Therefore, the assessment process should also consider CEO’s ability to establish strategic direction, build a management team and lead effectively.
We believe a CEO assessment process should be built around a number of leading practice principles. These principles are that any CEO assessment must:
- Align CEO performance with the objectives of the organisation;
- Be based on clear expectations developed and agreed in advance with the CEO;
- Have a clear, transparent and agreed link between performance outcomes and remuneration;
- Encourage the CEO to set developmental goals and plans and provide specific direction as necessary from the outcomes of the assessment process;
- Maintain and enhance the relationship between Board and CEO;
- Be tailored to the specific needs of the organisation; and
- Comply with relevant standards for accountability and communication of the results for the organisation.
The Effective Governance approach
Effective Governance’s approach to CEO assessment allows the board to determine how well the CEO has performed over the reporting period and to determine the CEO’s development needs. Since the most effective review of the CEO will require objective and reliable data, we utilise a number of leading practice tools and processes which measure the CEO’s leadership impact and management abilities and enable an assessment of the CEO’s performance during the evaluation period.
The eG CEO Expectations Diagnostic is used to determine whether the CEO is meeting the board’s expectations and incorporates the views of the CEO’s direct reports. Based upon the findings of the Expectations Diagnostic, the board may choose to employ the following tools:
- 360° Multifactor Leadership Questionnaire (MLQ 360°) – the full range of leadership competencies are rated by those who most rely on and are most influenced by the CEO.
- CEO Behavioural Profile – assesses the behaviours of the CEO, and complements the assessment debrief with ongoing coaching to remediate any behaviours detrimental to the CEO’s performance.
The eG CEO Performance Evaluation is a detailed assessment of the CEO against the CEO’s predetermined performance objectives, with the process being fully documented for subsequent years.
The results of the assessment process can then be used to inform board decisions on whether to award the CEO an increase to their base salary and a performance bonus.
Effective Governance can assist in the conduct of the CEO Expectations Diagnostic and/or CEO Performance Evaluation, and provide boards with leading practice documentation of the process.