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How Should You Evaluate Your CEO’s Performance This Year?

May 6, 2020

Posted in: WATSON Views

Is CEO evaluation the last thing on your mind right now? We get it. In the face of ongoing disruption and change, it might feel like a make-work exercise that can be pushed to the next quarter, or the quarter after that… While boards are dealing with more urgent and pressing matters right now, their CEOs are stepping up in a very real and challenging moment of leadership. CEOs need feedback and recognition, especially through unchartered times. For now, a message of appreciation and support will help, but eventually CEOs will need specific, actionable feedback to perform at their best. And there is much for all of us to learn from how we show up and perform in a crisis. While your CEO evaluation process might look different this year, it will be a critical step in shaping the path forward for your organization.

While it might not feel like a priority right now, it will be important to evaluate your CEO this year in a thoughtful, fulsome way. When this happens and what it looks like will vary based on your current context and past practice. At some stage, you need to tell the CEO how they performed, recognize accomplishments, and identify areas to strengthen performance and impact. You also need the opportunity as a board to step back and consider their long-term career trajectory and the organization’s future leadership needs, which may be shifting as a result of the current context. This doesn’t need to happen immediately, but it should be on the board’s radar.

In the short-term, consider doing a quick check-in on performance whenever the time feels right – ideally as the initial push in this crisis settles into something more stable and long term for your organization. Tell the CEO how they are doing, recognize their efforts to date, check in on their wellness and resiliency, and coach them on how to lead through the next phase of response.

Once things settle a bit, consider when you would usually evaluate your CEO, taking into consideration anything else that is hinging on the process (e.g., pay, succession, external reporting, etc.). Determine the right timing for a more fulsome look at CEO performance, with sensitivity to what the organization is dealing with right now. Figure out the timing that makes sense for your organization and get buy-in from the CEO and board to make it happen. Recognize that you may need to adjust the process given your organization’s new reality – interviews and debriefs will be conducted by phone or video, participants asked to provide feedback may not have the time to commit, and performance criteria may shift to recognize the significant changes in context and focus.

If you are following leading practice, you would have already established what success looks like. Typically, this might entail:

  • Delivering on strategic objectives/priorities
  • Fulfilling the core accountabilities of the role (e.g., building and developing a strong team, setting and managing the budget, ensuring efficient and effective operations, etc.)
  • Showing up as a leader in terms of behaviours and values

Good strategies anticipate that there will be unexpected challenges to weather in a year, and CEOs are expected to problem solve and adapt as they face new challenges. When typical challenges confront organizations, you don’t move the goalposts on the CEO – this is an expected part of the role and doing business. However, this year is unprecedented, and boards need to be more thoughtful in terms of how CEO success is measured in light of changing circumstances.

If your business has been completely disrupted by external forces, measuring against the original plans won’t feel right. This is a year when most boards will have to exercise some discretion. A thoughtful CEO evaluation in this context might include:

  • Consideration of how the CEO and organization faced this period of crisis and uncertainty
  • Review of the original agreed-upon objectives or measures and how the organization fared against them, acknowledging that in many cases the organization and CEO cannot be held to this standard of performance (this is intended for completeness, especially for organizations where this level of rigour is expected, and in consideration of the CEO’s performance before COVID-19)
  • Feedback on how the CEO and organization handled what arose for them this year
    • The organization’s readiness and response, and the impact/results – did the organization respond quickly and thoughtfully and outperform its peers? Was it slow to respond? How did the organization’s processes, systems, and people perform in the face of change?
    • How did the CEO communicate and set the tone for the organization, its employees, customers, stakeholders, etc.?
  • Early learnings for the future
    • What lessons can we apply to strengthen processes, practices, behaviours, risk frameworks, etc.? For example, has this exposed weakness in the crisis response system? Has it illuminated the fact that the executive bench is light? Has it allowed the organization to innovate quickly, highlighting previous barriers?
    • How is the CEO positioning the organization for recovery and future success?

Depending on your organization, there may be pay or other incentives tied to performance against agreed-upon criteria. In the best of times, this is a complex decision. It will now be further impacted by financial performance and stakeholder considerations – both the realities and the optics. In some organizations, providing some reward to the CEO to recognize exceptional leadership through the crisis – even if the organization’s original objectives were not achieved – will make sense (for example, if an organization outperforms peers or benchmarks by a notable amount due to strong leadership). In other organizations, rewarding the CEO financially would be absolutely the wrong move, regardless of performance, and could be detrimental to the organization (for example, if key stakeholders and/or employees have experienced pain and economic loss, providing additional reward to the CEO will not be well received). Organizations may need to think differently about CEO compensation, finding other ways to recognize achievement or delaying rewards until the organization is in a better position. In making their decision on compensation, boards should exercise judgement and consider:

  • What makes sense for the organization in its current context?
  • What are the impacts on stakeholders (direct and indirect) and what would their views be?
  • What is the long-term impact on engagement, alignment, and motivation of the CEO and/or other executives?
  • What is the bigger picture for the employee base? What challenging actions has the organization taken, and what would the right leadership look like here?
  • What are the potential (and possibly unexpected) long-term repercussions?

With so much on the shoulders of CEOs and their boards right now, it is a good year to streamline the process and seek support to share the load. Even if it might not feel like a priority, the process itself can trigger important conversations, uncover blind spots, and align the board and CEO. It also sends the message that how we lead during difficult times is important and requires care and feedback to do it properly. Do what feels right for your CEO and organization, but do something.