If appraising CEO performance is one of the most important trustee responsibilities, why is it often done so poorly, or not done at all?
Current business literature is full of research, methodologies and techniques for performance appraisal in general and CEO performance appraisal in particular. Numerous systems and templates are available. This article does not add to that mix. It argues for focusing on the purpose of CEO performance appraisal and provides practical advice intended to help ensure this critical trustee activity is completed as effectively as possible.
Why Doesn't It Happen?
Although surveys indicate that approximately 90 percent of health care organizations have some kind of CEO performance appraisal system in place, there is an abundance of anecdotal evidence suggesting that they are done poorly or not done at all.
One explanation is that trustees find appraisals difficult to complete. As one CEO put it, "We have a pretty good system, but I think the board looks at my annual performance review like a visit to the dentist." Many supervisors view the appraisal process with distaste, but because the board is removed from day-to-day supervision, CEO appraisal is more difficult.
Most CEOs crave feedback because they don't want the surprise of learning about a real or perceived problem after it is too late to adjust their approach. But some view their performance appraisal with trepidation. They may fear a face-to-face meeting with the whole board, be concerned about feedback from physician trustees, or worry about a particular board member with an ax to grind. These legitimate concerns can be addressed by taking a few steps like those described in this article.
What Can Go Wrong?
The point of appraisal is for trustees to provide feedback on the CEO's performance in the past year. It is critical that any problems or needs for course correction be clearly communicated. Even if trustees are pleased with the CEO's performance, communication is still essential to encourage him or her to stay on course. Therefore, the first consideration is ensuring that trustees' feedback is gathered and delivered. There are many objectives that can be attached to performance appraisal, but an essential one — particularly for the newer CEO — is trustee suggestions on how the CEO can further develop his or her own talent.
Some barriers stand in the way of effective appraisal. An overly complex appraisal system that covers too much can derail the process. If the primary objective is to deliver feedback, it is best to avoid freighting the appraisal with too much baggage, lest it be avoided because other matters require attention.
In this case, the process can be simplified, particularly if the organization already has adopted other ways of managing performance, such as an annual planning process, assessment of organization metrics or administration of the executive incentive plan. Any institutional measure that the board regularly oversees can be viewed as an ongoing assessment of the CEO, because the performance of the two are, in many ways, inseparable. In this case, there's no need to cover the same ground in a separate appraisal.
Sometimes the appraisal is ineffective because it relies on the same evaluation form as that used for other executives. If so, it likely will be ignored, because it is inappropriate for use by trustees. In their governance role, trustees have a rich variety of experiences from which to draw to assess the CEO's performance, but those experiences are much different from those of someone in a direct supervisory position. The appraisal form should recognize this, as well as the uniqueness of the CEO's job. The CEO recommends strategies, implements them not only through subordinates but in cooperation with other constituencies, and reports to a board. No other executive jobs have those attributes.
Finally, some organizations have an informal performance appraisal approach limited to a paragraph in the minutes or a short memo. In these cases, trustee feedback is unfocused and tends toward generalities. If there are performance issues, the informal approach can obscure problems or lead to misunderstanding because the trustees' concerns are not identified.
What Exactly Is Being Appraised?
There are six key CEO accountabilities that should be assessed in every appraisal: oversight of finances; executive team development; organizational culture; ensuring quality of care; effective strategic planning; and relationship with the board.
Trustees may want to add other accountabilities, such as physician relations. But too many can weigh down the process.
A 2008 survey of 125 hospital and system CEOs assessed the importance of 10 common objectives. The key finding was not the relative importance of each, but that the variance between each was tiny, as all 10 objectives were rated very important. To ensure that the appraisal form is easy to use, stick to the fewest, most obvious accountabilities for your organization.
In addition to reviewing the past year's performance, the appraisal is also the time to look forward and consider the CEO's talent development. As community and business leaders, trustees have considerable experience in developing their own talents and those of their subordinates. They can provide valuable advice to the CEO on his or her talent development. Examples are networking with high-performing CEOs, getting executive coaching or seeking broader educational experiences.
How to Get Started
A simple but effective system of CEO performance appraisal starts with a three- to four-page survey instrument covering questions on key job accountabilities. This will be used first by the CEO as a self-appraisal and then by the board for the CEO's evaluation. All trustees should have the CEO's self-appraisal in hand when they complete their appraisals, so they can react to the CEO's perception of his or her own performance. Trustees often find CEO self-perceptions of performance very informative. An easy-to-complete form is best; today, that means via a secure connection to the Internet.
Once appraisals are collected from trustees, there is a tendency to simply collate and communicate. Unfortunately, it is likely that any one isolated performance concern will get amplified in those results — and the CEO's mind.
It is more effective for the chair or another trustee to write a summary of feedback that identifies patterns and trends, places negatives in context and summarizes the message on one page. Then, an isolated area of criticism or one trustee's negative feedback can be dealt with appropriately. The nature of the basic message may have to be verified by other trustees, however.
It is also important to provide verbal feedback to ensure that a real give-and-take occurs. A one-on-one conversation, typically with the chair, works well, but including more than one trustee can help balance the message and may ensure a more complete picture of the CEO's response. Avoid a group feedback session with many trustees, however, because it can create a piling-on dynamic. The trustees included in this conversation may be dictated by board politics, but those politics should not create a hostile dynamic, so limit the session to no more than two trustees. Finally, the setting for verbal feedback should be kept businesslike and comfortable.
Above all, get it done. Many things require trustees' efforts and attention, but CEO performance appraisal takes precedence over most of them.
Dan Schleeter (Dan.Schleeter@IHStrategies.com) is a senior vice president with the executive compensation and governance practice of Integrated Healthcare Strategies, Minneapolis.