Navigating a New Relationship With the Board

Delta Organization & Leadership

CEO Evaluation

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� Oliver Wyman – Delta Organization & Leadership

Never in recent memory has CEO performance been the subject of such intense scrutiny or broad concern. In the wake of some appalling corporate scandals and a general decline in company performance, shareholders, employees, analysts, journalists, and politicians are all looking for someone to blame—and the CEO is the easiest and most obvious target. In addition, increasingly indepen-dent and empowered Boards are moving faster than ever to remove CEOs who don’t seem to be getting the job done. In this harsh and often unforgiving environment, a serious process for assessing CEO performance is no longer a “nice to do”—it has clearly become a “must have.”

Every segment of society is demanding greater CEO accountability. We’re seeing a fundamental change that’s more than just a pass-ing, post-Enron fad; this trend has been building steadily for the past decade. Even before Enron, Tyco, WorldCom, and other scandals made headlines, statistics were giving CEOs good reason to worry. The career of an average CEO has shortened in the past six years from 9.5 to 7.3 years, and one-third of current exits from the post are the result of dismissal. CEOs are now three times more likely to be fired for the same level of stock performance than they were in 1980.1

Regulations that require Boards to create a regular and systematic CEO performance appraisal process add one more element to a climate that’s already tricky to navigate. These mandates leave CEOs with three choices. They can sit back and watch as the Board develops a process on its own. Alternatively, CEOs can get involved with the Board and come up with a superficial appraisal process that satisfies the legal requirements but little else. We strongly recommend the third option: having the CEO and the Board work together to design an appraisal process that is serious, deliberate, helpful to the CEO, and beneficial to the company.

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Indeed, CEOs can turn the heightened scrutiny of their performance into an opportunity to strength-en their own leadership. Most CEOs already partic-ipate in some form of formal Board review because they recognize the utility of evaluations in ensur-ing that their actions and decisions drive company performance and increase shareholder value.�

Though the rewards of an effective CEO evalua-tion process are great, developing one with the Board that addresses both the CEO’s needs and the needs of the business can be bewilderingly complex. Each company has its own unique blend of personalities, strategy, history, resources, and competitors, which rules out any standardized solution. The short answer is, as the saying goes, “the devil is in the details.” The best place to start is with an examination of the principles that will enable a CEO to develop the best process for his or her company, given its particular strengths and needs. To help in this process, this paper looks at the following:

nClarifying the purpose of the CEO evaluation process through a close examination of its objectives

nDefining the key dimensions and measures of CEO performance

nExamining various feedback sources and methods

nDiscussing the steps in implementing a process and the barriers to effective implementation

Along with examining the various stages of defining and implementing an evaluation process, the paper will also provide examples of what some CEOs and Boards have done to address their particular needs.

Before beginning, it’s important to bear one particular thought in mind. In order for a CEO and Board to collaborate on developing an optimal evaluation process, a high level of communication

Figure 1: Objectives of the CEO Evaluation Process

PAST YEAR–BACKWARD FACING COMING YEAR–FORWARD FACING

OB

JEC

TIV

ESM

EASU

RES

� Organization Performance

� CEO Compensation

� Vision/Strategy

� Qualitative Indicators

� CEO Capability

� CEO Development/ Replacement

� Goal Accomplishment

� Quantitative Measures

CEOEvaluation

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and cooperation is required. Participants should recognize how fragile the process can be: without ongoing cooperation between the CEO and the Board, supportive decisions, and openness to feedback on the CEO’s part, the best designed evaluation process will be undermined.

Clarifying the Purpose of the ProcessThe first step in designing an effective CEO evaluation process is to establish a set of clear objectives. Just like performance appraisal processes at other levels of the organization, a CEO evaluation process can serve two related but distinct objectives: to collect information about past performance and to set goals for the future. More specifically, it can:

nHelp the Compensation Committee of the Board collect and interpret the data required to judge the CEO’s past performance. This is the basis for the decisions the Board is required to make regarding the CEO’s compensation and continued employment.

nHelp the CEO and the Board establish a clearer focus on the company’s future direction by specifying a set of strategic objectives at the start of the evaluation process. This goal-setting aspect of the evaluation can also serve as part of the CEO’s ongoing leadership development—with the Board providing feedback on the areas where the CEO needs to do a better job, learn new skills, or focus additional attention.

Thus, CEO evaluations can be “backward facing,” focusing on accountability and rewards for past performance and/or “forward facing,” focusing on future objectives and whether the CEO has the vision, strategy, and personal capabilities to achieve those objectives (see Figure 1). Though the Board’s oversight role does not require the “forward-facing” component of evaluation, adding the future view turns the process into something much more robust than a mere accounting exer-cise. That perspective requires the Board to assess the degree of “fit” between the CEO’s leadership

qualities and the demands imposed by the organi-zation’s strategic objectives.

Although these evaluation objectives are clearly distinct, in practice they are frequently bundled into the same process. Time constraints may force the Board to evaluate the CEO’s performance over the previous year while simultaneously mak-ing compensation decisions, setting next year’s targets, and discussing specific areas for improve-ment—often in a single meeting. In addition, some Boards and CEOs may recognize the conceptual distinction between these objectives, without seeing it as important in practical terms.

However, when the two objectives are not clearly separated, neither gets served very well. Without clearly delineated processes, one objective may receive a disproportionate amount of attention relative to the other. When this happens, it is usually the review of past performance for the purposes of compensation that dominates the conversation. Because it is far more tangible and is focused on objective (or at least pre-determined) metrics, the compensation review tends to be more straightforward and produces fewer emo-tional or defensive reactions than discussions of the CEO’s behavior and developmental needs.

When time is short, some CEOs and Boards may dispense with developmental discussion altogether, using the compensation review to set the CEO’s future objectives. This approach is likely to over-emphasize “what” the CEO is expected to achieve (such as increased revenue from cross-business collaboration) over “how” the CEO is expected to behave (giving more attention to developing future leaders, for example). Given the status and power of the CEO role, the chief executive may rarely be exposed to candid, detailed perspectives about his or her behavior and personal impact without a Board committed to providing formal developmental feedback.

At Honeywell, for example, separate meetings focusing on past and future performance ensure

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adequate attention to each evaluation objective. In mid-January, the CEO sends the Board his assessment of his past performance as well as his plan for the coming year, including his personal leadership objectives. As follow-up, the January Board meeting is largely devoted to discussion of the coming year’s objectives, while the February meeting focuses on the CEO’s performance over the past year.

Whether or not these two objectives are served through separate meetings is less of an issue than the fact that both are ultimately served. For instance, at the Target Corporation, a company with a reputation for excellence in corporate gov-ernance, both evaluation objectives are well served in a single meeting because of the Board’s and CEO’s commitment to a detailed review of past performance as well as an open discussion of future performance expectations and develop-mental needs.3

Defining Performance Dimensions and MeasuresA defining element of any evaluation process, whether for compensation decisions, goal-setting, or developmental feedback, is the set of perfor-mance dimensions to be evaluated. These form the basis of the measures, objectives, and targets used in the process. Among all of the decisions that need to be made throughout the process, this is probably the most challenging as it raises the complex issue of the relationship between the CEO’s actions and effectiveness as a leader, and corporate performance.

A useful distinction is to consider how effectively the CEO behaves as a leader and the organizational impact of the leader’s actions. Further, the impact of the CEO’s actions can be thought of in terms of the operational effectiveness of the organization as well as the organization’s bottom-line perfor-mance. Thus, there are three generic classes of CEO performance: bottom-line impact, operational impact, and leadership effectiveness.

Bottom-Line ImpactAlthough it is difficult to test in the short term except in extreme cases of brilliant decisions or egregious errors, an underlying assumption of almost all CEO evaluation and “pay-for- performance” plans is that the CEO has a direct and significant impact on corporate performance. Accordingly, the CEO is held accountable for the company’s overall financial health relative to industry peers. Figure � shows the types of bottom-line metrics used to evaluate the effective-ness of one CEO. While CEOs know that it’s critical to keep focused on corporate financial success, these bottom-line measures have severe deficien-cies as sole indicators of CEO performance. As the person at the top supposedly “pulling all the levers,” CEOs recognize that their ability to affect the organization’s bottom line is not exactly direct and not always overwhelming.

Figure 2: Bottom-Line Impact Dimensions Used in Evaluation of Air Touch CEO

Operating Cash Flow

Net Operating Revenue

The compensation and personnel committee measures

the company‘s actual performance against the CEO’s

projections in his/her actual plan.

Net Income Earning Per Share

Capital Expenditures Share Price

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Figure 3 provides an example of why this is the case in the area of customer relationship manage-ment (CRM). In this example, the CEO has engaged in direct action to improve customer relations, directly intervening with key customers and sponsoring organizational programs to build CRM capabilities. The impact of these actions on the strength of the customer relationship (in this case measured by customer satisfaction) can be quite strong, diminished or enhanced by only a hand-ful of extraneous factors. However, the impact of the CEO’s actions on the bottom line (in this case defined as growth in earnings from existing customers) is moderated by a bewildering array of external factors. The further away the desired impact moves from the CEO’s direct action, the more actual results are influenced by things outside his or her control.

Operational ImpactOperational impact refers to the CEO’s effect on the company’s operational and organizational effectiveness. This addresses the question, “What changes or improvements has the CEO made in the organization’s ability to function and perform?”

Operational impact measures include indicators of organizational functioning (e.g., retention rates, employee satisfaction scores), operational effec-tiveness (e.g., quality ratings of products, time to market), and strategic implementation (e.g., num-ber of acquisitions, total headcount reduction).

Figure 4 shows the operational impact dimensions identified as “most important in evaluating CEO performance” by almost 350 directors.4 These are significant measures to consider in CEO evalu-ations. As the Conference Board Report on CEO Compensation suggests, “These measures may give a better indication of a company’s underlying potential to create value, rather than looking to the immediate stock price, which is subject to market-wide volatility.”5 While still subject to considerable external and internal forces outside of the CEO’s immediate control, this type of performance is more closely related to the CEO’s actions.

Leadership EffectivenessAs a class of performance, leadership effectiveness refers to personal behaviors, which are completely within the CEO’s control. Accordingly, this cat-

Figure 3: The CEO’s Impact on Company Operations and the Bottom Line

Bottom-Line

Impact

� Quality of products

� Availability of capital to customers

� New governmental regulations

� Customer buying habits

� Strength of customer relationship

� Supplier delivery effectiveness

� Customer buying cycles

� Customer need

� Macroeconomic conditions

� New product from competitors

� Competitor customer management

� Supplier costs

CEO’sActions

OperationalImpact

� Quality of products

� Strength of customer relationship

� Competitor’s customer management

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egory is quite different than the previous two; the emphasis here is on the CEO’s actions and personal impact, not on organizational outcomes. Essentially, this speaks to the question of how well the CEO carries out his or her responsibilities, both in terms of whether he or she is executing on role responsibilities (identifying a successor, meeting with key customers, meeting with the investment community, developing a long-term strategy, etc.) as well as the quality of those actions (improving relationships with external stakeholders, energiz-ing the organization, gaining the confidence of investors, developing innovative and compelling strategies, etc.). Figure 5 identifies three key lead-ership effectiveness dimensions used to evaluate the CEO of Prudential Insurance.

Selecting Objectives and Specifying MeasuresThe three categories just identified simply describe the waterfront of CEO performance in generic terms. The specific dimensions and objectives used in a particular evaluation process will vary for each company. Nonetheless, there are some

general principles that leading companies follow in selecting CEO performance objectives�:

nGo beyond bottom-line performance. As discussed, financial measures of corporate performance, while critical, capture only one aspect (and often a tenuous one, at that) of CEO performance. To perform a more holistic evalu-ation and to compensate for some of the limita-tions of bottom-line measures, it is important to include objectives that relate to leadership behavior as well as the CEO’s impact on the organization’s operational effectiveness.

nFocus on a manageable number of objectives. One risk in attempting to define a mix of objec-tives that captures multiple aspects of CEO performance is that the list of performance dimensions may grow so large as to be unwork-able. It is important to get the number of dimen-sions right: too few and the process is likely to be dominated by short-term financial objectives; too many and the CEO and his or her manage-ment team risk losing focus. Of course, there is no magic number; this has to be determined for each company individually. Best-practice compa-nies typically have between five and ten.7

nInclude separate objectives for Chairman and CEO performance (where appropriate). In most American companies, the CEO also serves as the Chairman of the Board. It is important to evaluate performance in both roles. The CEO’s role as Chairman can be assessed as one component of a formal Board evaluation process. If a decision is made to incorporate the evaluation of the CEO’s per-formance in the role of Chairman as part of the Board’s evaluation processes, the leader of the Board assessment (typically the chair of the nominating committee) will play a role in the design, collection of data, and the delivery of feedback on this aspect of the evaluation. Otherwise, the dimensions of Chairman effec-tiveness can be added to the CEO’s evaluation process led by the compensation committee.

Figure 4: Most Important Dimensions of Operational Impact According to Survey of Corporate Directors

Company Image

Customer Satisfaction

Org. Flexibility and Agility

Research and Development

Company Morale

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nDefine measures for each objective. It is critical that each objective has clearly stated measures that will be used to track performance against that objective. This is simple enough for all bottom-line and most operational impact objectives. These dimensions lend themselves to hard, quantitative measure-ment. There are robust methods for reliably and validly measuring the “soft stuff” as well. For instance, leadership behaviors can be measured through behavioral rating methods that ask

Board members to indicate the frequency with which the CEO engages in desired behaviors and to what perceived effect.

nSpecify performance levels for each rating measure. Clearly identified measures for each objective greatly facilitate the sharing of performance expectations with the CEO. For instance, for any given measure, multiple levels of performance can be “scaled”: 0–10 percent earnings growth is poor, 11–�1 percent is acceptable, �� percent and above is outstanding. Although this is rarely done, these levels can help the Board and CEO develop a shared under-standing of the performance standards.

Examining Feedback Sources and MethodsThough the independent directors who make up the Board compensation committee bear the principal responsibility for the CEO evaluation process, many others can participate constructive-ly, greatly increasing the amount of information and quality of decision making. One increasingly popular practice in CEO evaluation is multisource feedback. In this process, the CEO is evaluated on a range of leadership effectiveness behaviors by multiple stakeholders—the Board, the executive team, customers, etc. If done well, a multisource assessment can provide the CEO with a clear pic-ture of which actions and behaviors are facilitating and which are impeding his or her effectiveness. Figure � illustrates how Dow Chemical structured a multisource feedback process for the CEO.

There are two criteria to consider in inviting additional “voices” to provide feedback on the CEO’s performance:

nDoes the individual or group have a valuable point of view on the CEO’s performance? For example, the CEO’s management team is likely to have much more exposure to his or her lead-ership behavior than the outside members of the Board.

nAre there collateral benefits to involving the person or group in the CEO evaluation process?

Stategic Leadership

Leads the development of appropriate strategies for the Enterprise; achieves support and commitment for the strategies from management and the Board.

Enterprise Guardianship

Board Relationships

Sets the ”tone at the top” in such matters as Enterprise reputation, ethics, legal compliance, customer rela-tions, and ensuring results.

Works collaboratively with Board members and com-mittees, communicates information in a timely manner to ensure full and informed consent about matters of Enterprise governance.

Source: Compensation Committee of the Board: Best Practices for Establishing Executive Compensation. The Conference Board, 2001.

Figure 5: Leadership Effectiveness Dimensions at Prudential Insurance

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One potential upside of including customer input in the evaluation, for example, is a stronger relationship with the customer and the increased sense of ownership in the suc-cess of the company. Similarly, when the CEO’s direct reports are involved, it can help to foster an environment of constructive feedback and diminish a “rubber stamp” mentality.

The decision to include additional people in the CEO evaluation should not be taken lightly. It increases the complexity of the process and intro-duces a set of political and interpersonal dynam-ics that have to be managed. In the end, for the feedback to have the appropriate impact, both the Board and the CEO have to be comfortable with the source.

Implementing a CEO Evaluation ProcessEffective CEO evaluation requires much more than clear expectations and clarity on performance

dimensions and objectives. Successful implemen-tation requires a detailed process map that identi-fies the various steps and ties the process to the company’s existing calendar of business planning and compensation review. Broadly speaking, the process can be defined by three steps correspond-ing to the beginning, middle, and end. These will be described in turn below.

Steps in the ProcessStep One: Defining the CEO’s Objectives. Before the start of the fiscal year, the CEO works with the compensation committee of the Board to estab-lish key long- and short-term business objectives for the coming year that are consistent with the company’s strategic plan. Using the strategy as a starting point, the CEO formulates an initial set of personal performance targets for the coming year, specifying how progress against each target will be measured.

The CEO then shares the targets with the com-pensation committee. After reviewing the tar-gets and amending them if needed, the final set is presented to the full Board for discussion and final approval. Once finalized, the targets can be cascaded down through the organization in a goal-setting process that aligns the objectives of each leadership level.

Step Two: Mid-year Review. Six months into the year, the compensation committee of the Board and the CEO should take time to review the targets and progress against them. Although many Boards skip this mid-year review or do it informally, it can provide great value for two reasons. First, it helps Boards monitor progress against the objectives—to see how the CEO is meeting or exceeding targets and to identify areas that require closer atten-tion. Second, it provides an opportunity to amend the targets in light of new circumstances, such as rapidly changing business conditions. This lat-ter capability is crucial in industries with rapidly changing market dynamics.

Improve CEO’s performance as a ”people” manager, not influence compensation

Director of global compensation/benefits

10-12 direct reports or people who have regular contact with the CEO

Leadership teamwork, commu-nication, integrity, development and coaching, interpersonal skills, and diversity

Source: Directors Publication Inc.: Performance Evaluation and Mutual Cooperation, 1992.

Figure 6: Multisource CEO Feedback at Dow Chemical

Purpose

Led by

Who is involved

Areas covered in assessment

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STEP ONE

� Management team develops strategic plan

� CEO specifies personal performance objectives tied to measurable targets and performance levels

� Compensation committee reviews targets

� CEO communicates target down to management team

STEP THREE

� CEO self-evaluation circulated; advisor comments synthesized

� Compensation committee uses evaluation to help determine pay and shares results with the CEO

� Evaluation process is reviewed and adjusted as necessary for the next year

STEP TWO

� CEO and Board review performance

Before start of fiscal year

Start of fiscal year

2nd quarter

1st quarter3rd quarter

End offiscal year

Figure 7: CEO Evaluation Timeline

Step Three: Year-end Assessment. The final step in the evaluation process occurs at the end of the fiscal year when the CEO’s performance is measured against the previously established objectives. As with the creation of the targets, this process should begin with the CEO who supplies a

self-evaluation and has an opportunity to address areas where targets were not met. The self-assess-ment is shared with the compensation committee. Typically, the compensation committee shares this assessment with the full Board and seeks other Board members’ input on the CEO’s performance.

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On these occasions, the compensation committee provides a guide for how other Board members should conduct their own assessment of the CEO’s performance.

Evaluations by all Board members are collected and given to the compensation committee, which uses the results to determine the portion of the CEO’s pay that is linked to performance. Before providing feedback to the CEO, the recommenda-tions and the results of the evaluation process should be first discussed in the Board, without the CEO or other inside directors present. Once the results are discussed and fully understood, the final step is for the CEO to receive the feedback.

It is important to ensure candid and timely report-ing of the feedback to the CEO. The ability to deliv-er impactful feedback is so critical that it demands careful selection of the feedback provider. This skill should be a selection criterion for any posi-tion that has CEO evaluation and feedback as a job requirement (e.g., chair of the compensation committee).

This entire process is repeated yearly. As part of its own annual performance evaluation, the compen-sation committee should include a review of the CEO evaluation process and seek ways to improve it. Figure 7 illustrates the steps identified above as a recurring cycle. This type of tool is useful for managing the pacing and timing of each step.

Barriers to Effective ImplementationSuccessfully carrying out an evaluation at this level of the organization is a difficult undertak-ing. To facilitate the development of an effective process, a worksheet is attached as an appendix to this paper. It will help stimulate thinking about the following: dimensions and objectives, linkages to the organization’s vision and values, roles and responsibilities of the CEO, and content and measures.

Understanding and working to minimize potential hurdles at the outset increase the likelihood of a

successful and sustainable process. As with any complex process, there are a number of common pitfalls to look out for. These include:

nUncertainty concerning roles and responsibili-ties. As with any detailed, multistakeholder process, there is likely to be some confusion over roles and responsibilities at first. Much of this confusion can be alleviated through attention to the principles of effective process design—a clear charter, descriptions of roles and accountabilities, timelines and milestones, etc. The director leading the process (typically the chair of the compensation committee) should also contract with the various members of the Board to clarify his or her expectations for how they should participate in the various aspects of the process (e.g., as “judge” versus “coach,” providing input to decisions versus making decisions).

nLack of time and energy. One of the major constraints that all Boards face is how to find the time needed to monitor short-term finan-cial performance, shape long-term strategy, and fulfill the many other duties of the Board—all within the limited amount of time the Board spends together. Given these constraints, an elaborate CEO evaluation process requiring significant input from the Board is likely to meet with resistance. Yet, a well-designed CEO evaluation can bring structure and efficiency to many of the Board’s oversight responsibili-ties, actually saving the Board time in the long run. A well-designed process, with clear roles and adequate administrative support to manage the “paper trail,” can also reduce the amount of effort required of each individual Board member in the process.

nDisagreement over criteria for assessment. In the early stages of designing a CEO evaluation, a debate over the appropriate criteria for assess-ing performance is actually quite healthy, indicating that the relevant stakeholders are thinking carefully about the process. Before the process can be enacted however, the CEO and

Oliver Wyman – Delta Organization & Leadership1�

the Board must agree that the dimensions of performance and objectives used are the right ones. The ultimate standard by which disagree-ments should be resolved is by appealing to the strategy and business needs of the organiza-tion—ultimately all criteria for CEO evaluation should have a direct line-of-sight back to the needs of the business.

nLack of direct information about non-quantita-tive performance. Financial and key operational metrics are readily available in most organiza-tions. However, measures of “softer” aspects of performance such as leadership effectiveness often have to be designed specifically for the purpose of the evaluation. These measures can be quite effective and informative if based on a well-understood model of leadership effective-ness and developed with appropriate concern for psychometric validity by a professional trained in attitude and behavioral assessment.

Ultimately, the CEO’s behavior and attitude towards the evaluation is the greatest single determinant of the effectiveness of the process. Performance reviews are most valuable when they are characterized by a complete and candid discussion of the CEO’s strengths and areas for improvement. Of course, the CEO and Board share responsibility for setting the right tone. However, because the CEO is the focal point of the process as well as the “beneficiary” of the feedback, the bulk of the responsibility rests with him or her. Defensiveness, detachment, or antagonism can change an otherwise helpful evaluation into a yearly unpleasantry.

Board members often report that the difference between a good evaluation process in which everyone wants to participate and an evaluation process that becomes mere window dressing is the CEO’s attitude toward the process and reactions to the feedback. At the same time, an ad hoc evalu-ation process sprung on the CEO can send the wrong signals about the nature of the Board/CEO relationship. The Board therefore needs to make a

similar investment to ensure that the process is well thought out and part of the normal course of business.

SummaryToday’s CEOs find themselves subjected to unprecedented levels of scrutiny and concern. Statistics on contracting CEO tenure indicate that this is not a passing phase. Regular evaluation is a healthy part of corporate life, however. In fact, a forward-looking CEO evaluation process offers great promise—heightened performance account-ability, stronger links between performance and rewards, support for CEO development, and bet-ter Board/CEO relations. Realizing these benefits requires close attention to detail, though.

This paper has defined performance dimensions and measures for the CEO, looked at various means of gathering feedback, and mapped out both the steps to implementing the process and the barriers to an effective evaluation. These steps will facilitate the development of an effective CEO evaluation process that is an important part of the top leader’s success—and survival.

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Appendix: CEO Evaluation Process Review

Purpose: This worksheet is designed to assess the quality and comprehensiveness of a CEO evaluation pro-cess. The questions are derived from best practices in three areas: the process of evaluation, relevant roles during the process, and the content of the evaluation itself.

Instructions: Enter Yes, No, or N/A (Not Applicable) in the rating column

Procedural Elements

Cr iteriA rAting COmments

1. Is there an explicit description of the CEO evaluation process with articulated goals, roles, and responsibilities?

2. Is there an explicit process calendar with detailed deadlines and milestones?

3. Is the process calendar aligned with the corpo-rate calendar (i.e., do CEO evaluation events fit with pre-existing governance and management schedules)?

4. Does the process include a mid-year check-in on CEO performance?

5. Does the process include a focus on CEO development and opportunities for developmental feedback?

6. Is the process consistent with the company’s values and culture?

7. Does the process include quality assurance mechanisms that allow it to be revised as needed?

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Cr iteriA rAting COmments

8. Does the process have a clearly identified leader?

9. Is the process sufficiently controlled (led and managed) by outside directors to preserve the integrity of the evaluation?

10. Is there a clearly defined role (or external consultant) for the collecting and compiling of performance data, ratings, etc.?

11. Is the CEO considered a partner at each stage of the process, with ample opportunity for input?

12. Are the people with the most valid information about the CEO’s actions and leadership impact given the opportunity to provide feedback?

13. Has the feedback deliverer been identified? Does this person have the skills required to effectively deliver CEO performance feedback?

Roles and Resposibilities

Cr iteriA rAting COmments

14. Have performance standards and criteria for evaluating the CEO been identified and made explicit?

15. Are all relevant aspects of CEO performance included in the performance criteria?

16. Do performance criteria encompass both CEO and Chairman roles?

17. Is there a clear link between the performance criteria that make up the evaluation and the company’s strategic objectives and business requirements?

18. Can a business rationale be articulated for each performance criterion?

19. Is there a valid, feasible measure identified for each relevant performance criterion?

20. Are statistically sound methods used to gather and interpret performance data?

Content and Measures

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1. Both statistics from The Wall Street Journal, July 30, �00�.

�. Korn/Ferry International. 28th Annual Board of Directors Survey, �001; American Society of Corporate Secretaries (ASCS). Current Best Practices, Third Study, �001.

3. Conger, J.A., Lawler, III, E.E. and Finegold, D.L., CEO Appraisal: Holding Leadership Accountable, 1998.

4. The Conference Board. Compen-sation Committee of the Board: Best Practices for Establishing Executive Compensation, Report No. R-130�-01-RR, �001.

5. ibid

�. Korn/Ferry International. Evaluating the Chief Officer, 1998.

7. Conger, J.A., Lawler, III, E.E. and Finegold, D.L. Corporate Boards: New Strategies for Adding Value at the Top. San Francisco: Jossey-Bass, �001.

Footnotes References

American Society of Corporate Secretaries (ASCS). Current Best Practices, �001.

Ames, B.C. “The Enron Lesson.” The Daily Deal, February 15, �00�.

Bailey, D. and Knepper, W. (Eds.). Liability of Corporate Officers. Lexis Law Publishing, �000.

Bonsignore, F.N. “Constructive Thinking on CEO Evaluation.” Directors & Boards, Summer, 1997.

The Business Roundtable. Statement on Corporate Governance. September, 1997.

Carver, J. Board Assessment of the CEO. San Francisco: Jossey-Bass, 1997.

Charan, R. Boards at Work. San Francisco: Jossey-Bass, 1998.

The California Public Employees’ Retirement System (CalPERS). Corporate Governance Core Principles & Guidelines, 1998.

The Conference Board. Compensa-tion Committee of the Board: Best Practices for Establishing Executive Compensation. Report No. R-130�-01-RR, �001.

The Conference Board. Corporate Boards: CEO Selection, Evaluation, and Succession. Report No. 1103-95-RR, 1995.

Conger, J.A., Lawler, III, E.E. and Finegold, D.L. CEO Appraisal: Hold-ing Leadership Accountable, 1998.

Conger, J.A., Lawler, III, E.E. and Finegold, D.L. Corporate Boards: New Strategies for Adding Value at the Top. San Francisco: Jossey-Bass, �001.

Cornwall, D.J. “Succession: The Need for Detailed Insight: Evaluating a Company’s Chief Executive Officer.” Directors & Boards, June ��, �001.

Hann, D.P. “Emerging Issues in U.S. Corporate Governance: Are the Recent Reforms Working?” Defense Counsel Journal, April, �001.

Goldstein, M.L. “Grading the CEO.” Industry Week, January �1, 1985.

Korn/Ferry International. Evaluating the Chief Executive Officer, 1998.

Korn/Ferry International. 28th Annual Board of Directors Survey, �001.

Lawler, III, E.E. “Appraising Board-room Performance.” Harvard Business Review, January, 1998.

Lear, R.W., & Yavitz, B. Boards on Trial. Chief Executive, October, �000.

Oliver Wyman – Delta Organization & Leadership1�

Lipton, M. and Lorsch, J.W. “A Modest Proposal for Improved Corporate Governance.” The Business Lawyer, November, 199�.

Lorchner, Jr., P.R. “Lessons in Evaluating CEO Performance: Tell It Like It Is.” Directorship, October, �000.

Muschewske, R.C. “CEO Evalua-tion: A Process that Works.” Direc-tors & Boards, June ��, 1995.

National Association of Corporate Directors. Performance Evaluation of Chief Executive Officers, Boards and Directors, �000.

Orlikoff, J.E. and Totten, M.K. CEO Evaluation and Compensation. Trustee, 199�.

Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF). TIAA-CREF Policy Statement on Corporate Governance, 1997.

Tyler, J.L. “Practical Governance: CEO Performance Appraisal.” Trustee, �001.

Ward, Ralph D. Improving Corporate Boards. New York: John Wiley & Sons, �000.

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19CEO Evaluation

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Oliver Wyman is building the leading global management consultancy, combining deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. Delta Organization & Leadership works collaboratively with CEOs and senior executives to meet the challenges of building talent, accelerating organizational performance, and driving business success. Our Executive Learning Center provides top-tier executive education around the world, designing and implementing customized programs that develop the leaders you need to compete and grow.

We bring deep expertise and a track record of high-impact solutions that minimize business risk by:

n Maximizing CEO and senior team effectiveness

n Making your strategy work

n Building an effective board

n Managing the business of change

n Redesigning your organization

n Developing a pipeline of the right leaders for your business

n Securing commitment through communication and engagement

n Bringing meaningful data to decision-making

About Oliver Wyman – Delta Organization & Leadership