The start-point for assessing the performance any top executive is progress against strategy and financial and operating metrics. The problem is, it often ends at that – when it should go much further.
None of these helps to reveal what that executive is doing that might help or hinder the organisation in the long term. Let’s start by looking at how the CEO should evaluate his or her direct reports – the other leaders of the organisation.
To accurately gauge senior executive performance a CEO should go into the business and watch how the executive works with people, first-hand. Then they should cross-check their observations with peers and subordinates.
Could a similar process work for the CEO? It is difficult for those reporting to the CEO to be the appraisers because of the reversal of seniority and dependent relationship – especially in smaller organisations.
Therefore the crucial step is for the independent members of the board, or advisors to it, to use their external perspective to appraise the CEOs performance on five dimensions
- Leadership. How well does the CEO motivate and energize the organization, and is the company’s culture reinforcing its vision and values?
- People management. Is the CEO putting the right people in the right jobs and developing their leadership capability? Is there a stream of appropriate people for succession and to support growth goals? Is everyone clear on their role and the organisation’s expectations of them.
- Strategy. Is it working, is the company aligned behind it, and is it being effectively implemented?
- Key metrics. Are sales, profits, productivity, asset utilization, quality, customer satisfaction, new customer growth and staff retention heading in the right direction?
- Relationships with external stakeholders. How well does the CEO engage with the company’s customers, suppliers and other stakeholders?
The answers to these questions should be evaluated by the independent panel and shared with the CEO. It is highly unlikely that any CEO would excel on all 5, and the overall appraisal will indicate areas of improvement as well as excellence.
Such an appraisal goes way beyond the usual metrics. The quiet chat with the Chairman is dead.