The board is responsible for setting the hospital or health system’s mission and vision, and for engaging leaders and staff in working toward that vision. After the board, no individual has more influence over the organization than the CEO; however, the board defines the leadership competencies, responsibilities and personal attributes required of the CEO, and ultimately selects, motivates and retains the right CEO for long-term success.
Among the many pressures facing hospitals and health systems, the demand for quality and demonstrated value are higher than ever. Boards operating in this environment can’t rely on outdated CEO skill sets and evaluations that don’t address this reality. Forward-looking boards must set clear expectations of their senior leaders, and use those expectations as a launch pad to ensure that their current and future CEOs provide the leadership the organization needs.
Expectations and Metrics
CEO success and a sound board-CEO relationship begins with setting performance expectations. These expectations should be objective, link directly with the organization’s strategic priorities and be established before the start of the hospital’s operating year.
As a first step, the board should agree on the importance of various factors in CEO success. This includes evaluating the functions for which the CEO is responsible and identifying the leadership competencies and personal attributes the board seeks from its CEO. The functional areas typically assessed in CEO performance include leadership performance (such as promoting organizational culture and developing executive leadership); vision and strategy; employee relations; operational performance; financial performance; quality and patient satisfaction; board relations; legal and regulatory compliance; medical staff relations; community relations; and strategic plan achievement. Personal attributes include effective communication; problem-solving; team-building; leadership qualities; and ethics.
Performance measures may be both quantitative and qualitative. Quantitative measures typically include financial performance; quality performance; physician, patient and employee satisfaction; and achievement of the organization’s strategic goals. Qualitative measures include board relations and development; community relations; communication; leadership; medical staff and employee relations; ethics; and problem-solving.
Setting appropriate expectations requires the board to have a thorough knowledge of the environment and the changes underway, coupled with an ability to determine how those changes will influence their current and future expectations of the CEO. Transformation in health care already has heightened the importance of certain CEO competencies, responsibilities and attributes. For example, integration with physician groups requires an ability to establish strong working relationships with the medical staff and create loyalty to further the organization’s strategic objectives.
At the same time, the growth in mergers, acquisitions and affiliations calls for expertise in leading complex organizations, business development and negotiating new partnerships. The CEO may be held accountable for his or her ability to analyze and develop new business opportunities that promote the organization’s growth, profitability and service to the community. Payment structures in which the hospital or health system assumes risk require additional experience and knowledge on the part of the CEO.
With increasing focus on community health needs and population health, the ability to collaborate with local leaders and other health providers, foster public trust and confidence among the community, and demonstrate progress toward community health improvement goals also are top priorities.
When determining the criteria by which the CEO’s performance will be evaluated, the board also must decide how critical each function is to achieving the organization’s strategic goals. The factors and criteria should be ranked by importance. These measures must be discussed with the CEO to ensure board and CEO alignment on priorities and expectations.
The Benefits of an Evaluation
The CEO evaluation process is about more than compensation. It sets expectations for CEO and overall organizational performance. It also encourages communication between the board and CEO as they identify performance areas that need additional attention. Only after that does the performance evaluation link the CEO’s achievements to his or her compensation, ensuring a pay-for-performance alignment.
Engaging the CEO as a partner in the process helps to ensure that expectations are realistic and achievable. It also allows the CEO to propose his or her own professional and organizational goals.
CEO Performance Evaluation Goals
Keep the following goals in mind when preparing to evaluate your hospital or system CEO:
• Expectations should be identified well in advance of the evaluation.
• Evaluations should be continuous throughout the year, culminating in a formal performance review, held annually, with no surprises for the CEO or board.
• Evaluations should provide meaningful feedback on the CEO’s success in achieving board-approved objectives.
• The process should enhance board-CEO working relationships.
• Data and objectivity should be the foundation of the performance evaluation and decisions about compensation.
• Leadership in understanding the mission, engaging the workforce in living the values and working toward the vision should be a centerpiece of the performance evaluation.
• Performance in specific areas should link directly to compensation. — C.F. and N.M.
What Skills Does Your CEO Need?
For many hospitals and health systems, the skills and competencies required of future CEOs are different from those needed for past leaders. Consider the following questions when developing your current and future CEO expectations:
• Have we recently been involved in a merger, acquisition, joint venture or partnership, or do we anticipate an increase in this activity in the future?
• How important is collaboration across the continuum of care in the communities we serve?
• How will our organization address population health in the communities we serve?
• How will we build public trust and confidence, and understand and demonstrate progress in meeting community health improvement goals?
• Are we currently participating in an accountable care organization or do we anticipate doing so?
• Are we considering engaging in other forms of risk-based contracts, or offering our own health insurance?
• How much risk are we willing and prepared to assume?
• How is care changing in our competitive environment and in the communities we serve? How do we need to adapt in the way we provide care in nontraditional ways?
• Where do we fall in terms of quality and patient satisfaction? How are we striving to improve our performance?
• What are our workforce goals and needs?
• How is the hospital’s relationship with physicians? Are we partners?
• How important is change management, experience in leading complex organizations and business development in our CEO position?
• How important is our CEO’s ability to forge new partnerships, create business opportunities and find creative ways to ensure long-term financial sustainability? — C.F. and N.M.
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