Employees of any organization, at all levels, whether for profit or nonprofit, require clear expectations and feedback on their performance against those expectations. Regular feedback contributes to top performance and career wellbeing.
Many nonprofit organizations, however, lack a clear process and accountability for assessing the chief executive officer (CEO). Perhaps counterintuitively, such a process must not fall to the organization's HR manager. The board, if not the board chair, must own this responsibility. As a foundational step, the board must set clear expectations for evaluation of the CEO at that person's hire.
The five best practices for evaluating a new CEO
The following are best practices the board may tailor to their organization to create a process and tools to evaluate the CEO.
1. Set clear expectations of the CEO at hire
Early in the hiring process, the board must communicate the evaluation process to the new CEO. The board must decide the evaluation process before the performance year begins. State clearly who collects the feedback and who will deliver the assessment. Will the chair, vice chair, past president — or some combination — take that role? What tools will they use?
2. Identify qualitative and quantitative goals for the CEO
The CEO's goals should relate directly to the organization's strategic plan. By identifying goals that the CEO can accomplished in a fiscal year, the board can drive progress, even if the plan spans three to five years.
For example, if the strategic plan targets a membership increase of 10% over the next three years, the CEO's annual goal for a given year might be to increase membership 4% through a targeted outreach campaign. Quantitative goals can include financial metrics, budget parameters and such staff metrics as turnover and hiring rates.
Qualitative metrics include those important goals that the organization measures differently, such as increasing staff engagement or partnering with community organizations on an initiative. Tools may include an engagement survey or community feedback channels.
3. Determine the CEO's core competencies
Those skills every CEO must demonstrate regularly and at a high level, include:
- Strategic thinking
- Visionary leadership
- Business acumen
- Fundraising ability
- Interpersonal people skills
The board must describe the actual behaviors for the CEO as well as measure the competency. For example, to demonstrate visionary leadership, does the CEO create a vision for the organization, regularly communicate it to all audiences and drive towards it continuously?
4. Align with the organization's values and guiding principles
Many organizations spend time and resources to develop a set of core values that leaders expect all employees to follow. These values should top the evaluation for every employee, including the CEO. The chief executive must know and model the spirit of the values as well as the behaviors that accompany them.
5. Evaluate the priorities for the future
No evaluation conversation with the CEO is complete without a discussion of the future. What opportunities and threats appear on the horizon? What environmental scanning must the organization do, and what has that revealed? What aspects of the strategic plan are most important for the next 12 months? The board must partner with the CEO to set specific goals for the coming year.
Design the right evaluation process for success
At Gallagher, we recommend clients follow a simple approach, particularly if the process is new. Consider the following:
- Create a document to include all performance categories: Competencies, goals and values. Include fields for comments and a rating — does not meet, meets, exceeds, etc.
- Collect feedback from those with whom the CEO interacts consistently. Include direct reports, staff, board members and community members. Use one tool to collect the feedback and ask questions relevant to the categories on the evaluation form. Remove outliers and summarize the feedback to create the overall ratings and comments.
- Set up a time to review the feedback and ratings after the fiscal year is complete. Discuss implications for salary increase, bonus incentive for meeting certain targets, and goals for the following year.
- Document the review and save it for the next board chair.
That said, the traditional annual sit-down review is over. I recommend collecting and providing feedback and "feedforward" — adjusted or reinforced expectations — to your CEO regularly. Consider incorporating this discussion into a board meeting in a special session after the regular meeting, perhaps once a quarter. Maintain transparency with the rest of the board and leadership so everyone has a clear picture of the organization's status, and there are no surprises concerning feedback for the CEO.
If your organization would like to discuss the CEO evaluation process or connection of senior leadership feedback with overall organization strategy, my team and I would welcome a conversation. Let Gallagher help your organization to face the future with confidence.