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Pay for performance

What today’s CEO performance appraisals are missing

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Organisations looking to improve CEO performance and measure their progress in an optimal manner may need to revisit the frequency and metrics of their CEO performance evaluations.

This was one of key conclusions of new research from Hay Group and Agenda, which asked 147 board directors and CEOs for their perspectives on the performance evaluation process for CEOs.

The study found that a majority of companies (54%) hold formal conversations with their CEO about performance just once each year or less frequently.

“It appears from the survey that many companies still view assessing the CEO’s performance as an annual exercise,” noted Owen Walker, managing editor of Agenda.

In addition, only 20% discuss performance four or more times each year—the minimum frequency with which Hay Group advises clients review CEO performance and discuss metrics and goals.

The report also highlighted more can be done with regards to soliciting feedback on performance.

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“Most organisations continue to rely on feedback from board members in executive sessions and written/online surveys in soliciting CEO performance feedback, despite evidence that one-on-one meetings are more effective at garnering actionable information that can inform performance improvements,” the report stated.

It added that boards may be missing out on an important source of performance feedback by failing to regularly incorporate input from CEOs’ direct reports in the performance review process.

When it comes to measuring performance, the report found companies continue to rely heavily on financial metrics during the CEO performance evaluation process.

More than nine in 10 respondents said their organisation uses measures of financial performance, strategy development and execution to evaluate the CEO.

However, less than half of organisations look at more qualitative measures, such as customer satisfaction (37%) or innovation (24%).

Other soft skills, however, made a stronger showing in evaluations.

More than three quarters (77%) of respondents said their CEO was evaluated on the basis of leadership skills, and 65% of organisations looked at succession planning and internal talent development.

“As the pendulum in evaluation metrics continues to swing back toward a more even balance of qualitative and quantitative metrics within CEO performance evaluations, communications and teamwork at the highest level stand out as key metrics,” the report stated.

Image: Shutterstock

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