Yes or No: The Key to Better CEO Evaluations

Which question is easier to answer: “Is the sky green?” or “What shade of blue is the sky?” Unless you suffer from some degree of colorblindness, the obvious response is that the first question is easier to answer. Why? Because it offers a simple yes/no response and there is clearly a right and a wrong answer. The second question leads to a response based on opinion, which means that any response could be considered correct. In these two questions about the color of the sky we define one of the great challenges to effective CEO performance evaluation, and a very simple solution. 

The Problem with the CEO Evaluation Process

We have been asked on numerous occasions to work with boards to evaluate and fix existing CEO performance evaluation programs. Most often these programs have been designed by an HR consultant or specialist of some kind, and involve all sorts of “complicated” formulas designed to elicit board feedback on performance criteria, determine a score, and reflect that score back to the CEO as a measure of their performance. We are asked to “fix” these programs because boards find them too complicated to carry out and are confused by (or disagree with) the scoring systems.

A common theme from client to client is that the systems in place rely on opinion-based performance analysis, and are set up to survey board members with regard to CEO performance using a scale. Typically the scale ranges from 0 meaning strongly disagree, to 5 meaning strongly agree. Now, think about evaluating the performance illustrated below using the all-too-familiar 0-5 scale:

Return on Assets: Goal: .5, Actual: .25

Or, how about evaluating performance against this common “subjective” question, again using the 0-5 scale:

The Credit Union is operating in a manner that is consistent with our mission and vision under the leadership of the CEO.

Rather than go into great detail explaining the scoring methodology, I’ll simply get right to the crux of a common problem. This method of performance evaluation is too much like the “What shade of blue is the sky?” question above. It is too vague, and leaves a proper response to the imagination of individual board members. Put another way, it is like the famous comment from Supreme Court Justice Potter Stewart regarding pornography. He said…”I know it when I see it…”

A More Effective Methodology

Now some things can be left to the eye of the beholder to determine whether “it is” or “it isn’t”, but with regard to CEO performance there is a path to a better means of performance assessment than such subjective methodologies. Again, consider this particular CEO objective:

The Credit Union is operating in a manner that is consistent with our mission and vision under the leadership of the CEO.

To begin with, a board would do well to throw out the 0-5 scale of assessing CEO performance in this area and simply turn it into a “yes” or “no” question. The CEO either did operate the credit union in an appropriate manner or did not. Yes…or no.

Now, in looking at answering this question with such limited options – only two! – a particular problem with the evaluation criteria itself emerges. Even yes or no responses are left to a great deal of subjective interpretation. This should lead to an “a ha” moment. The question itself is shown as too vague to hold a CEO accountable to it, not to mention base their compensation, bonus, etc. upon it.

When we begin talking with boards about improving their CEO performance evaluation programs, one of the first things we try to nail down are the specific sets of performance criteria to which they want to hold their CEO accountable. The statement above is a good start, but we would drive boards to further clarification. Rather than let a board get by with a vague connection between operations and mission/vision, we encourage them spell it out. For example, what specifically will the credit union be doing if it is operating in a manner consistent with its mission/vision? That is our question to boards, and their specific responses begin to form the real basis for CEO performance evaluation.

Why is this kind of specificity important? For starters, consider this fact in light of the example of evaluation criteria listed above: board members don’t live credit union mission and vision every day. The obscure reference, then, to mission and vision in the performance evaluation criteria is sure to be met with an interpretation during the once-a-year evaluation – an interpretation not only of whether the CEO is meeting the mission/vision but an interpretation of what the mission/vision statements actually say. Far better for board members to be clear about the specifics of their expectations than to have to interpret their expectations. Not only will more specific criteria greatly strengthen their evaluation of performance, CEOs themselves will be much clearer on board expectations.

An interesting side note to this last point. You would think that any CEO involved in this kind of vague, subjective assessment process would be pulling their hair out because the evaluations are not based on specific performance goals. Why, then, don’t we have more short-haired credit union CEOs? Because the more vague the performance criteria, the more likely the CEO will receive a slew of “Agree” and “Strongly Agree” responses. In other words, the existing evaluation process more often than not leads to a false consensus suggesting the CEO is doing a great job. If I am a CEO who year after year “reaches” for the same subjective performance evaluation goals, and successfully attains them, why change the process!?

For really effective CEOs and/or attuned boards, however, performance evaluation subjectivity is a frustrating thing to endure. I recall one meeting where a CEO, fed up with the vagaries of board expectations, nearly shouted, “I just want to know what YOU want!” I’ve seen boards express similar frustrations, but with the vagaries of the performance evaluation process itself.

So back to the simplicity of the “yes” or “no” question. Boards (and this is most surely an activity to be driven by boards – though CEO involvement is recommended) must begin looking at the criteria they currently hold CEOs accountable to, and asking whether the evaluation of the CEO’s performance in light of this criteria can be assessed via a yes/no response. If “maybe” pops up as an optional response in addition to yes or no, then the criteria is not specific enough and the board will need to dig to greater depths in order to uncover its root expectations.

While there is more to the process, the important point is that effective CEO performance evaluations all begin with establishing the simple ability to say “yes, the CEO did” or “no, the CEO did not” in the context of clear, and instructive performance criteria.

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Glatt Consulting helps credit unions answer important strategic questions. We especially excel at answering questions concerning corporate direction, financial objectives/expectations, merger, succession, CEO compensation and performance evaluation, branding, growth, execution and budgeting, efficiency, workflow, and vendor selection. Contact us at (888) 217-5988 to talk about how we might help your credit union.

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