Delta Organization & Leadership

CEO Evaluation
Navigating a New Relationship With the Board
Heading goes here

Text 9.5/14 goes here.

Text subhead goes here

Text 9.5/14 goes here.

 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.

CEO Evaluation 
Indeed, CEOs can turn the heightened scrutiny of n Clarifying the purpose of the CEO evaluation
their performance into an opportunity to strength- process through a close examination of its
en their own leadership. Most CEOs already partic- objectives
ipate in some form of formal Board review because
n Defining the key dimensions and measures of
they recognize the utility of evaluations in ensur-
CEO performance
ing that their actions and decisions drive company
performance and increase shareholder value.2 n Examining various feedback sources and
methods
Though the rewards of an effective CEO evalua-
tion process are great, developing one with the n Discussing the steps in implementing a process
Board that addresses both the CEO’s needs and and the barriers to effective implementation
the needs of the business can be bewilderingly
Along with examining the various stages of
complex. Each company has its own unique blend
defining and implementing an evaluation process,
of personalities, strategy, history, resources, and
the paper will also provide examples of what
competitors, which rules out any standardized
some CEOs and Boards have done to address their
solution. The short answer is, as the saying goes,
particular needs.
“the devil is in the details.” The best place to start
is with an examination of the principles that will
Before beginning, it’s important to bear one
enable a CEO to develop the best process for his
particular thought in mind. In order for a CEO and
or her company, given its particular strengths and
Board to collaborate on developing an optimal
needs. To help in this process, this paper looks at
evaluation process, a high level of communication
the following:

Figure 1: Objectives of the CEO Evaluation Process

PAST YEAR–BACKWARD FACING COMING YEAR–FORWARD FACING

OBJECTIVES

� Organization � CEO Capability

Performance
� CEO Development/
� CEO Compensation Replacement
CEO
Evaluation
� Goal Accomplishment � Vision/Strategy
MEASURES

� Quantitative � Qualitative
Measures Indicators

 Oliver Wyman – Delta Organization & Leadership

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 Process
The 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:
n Help 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.
n Help 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
CEO Evaluation
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

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
Measures
A 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.
 Oliver Wyman – Delta Organization & Leadership
Figure 2: Bottom-Line Impact
Dimensions Used in Evaluation of Air
Touch CEO
Net Operating Operating
Revenue Cash Flow
Net Income Earning Per
Share
Capital
Share Price
Expenditures
The compensation and personnel committee measures
the company‘s actual performance against the CEO’s
projections in his/her actual plan.
Bottom-Line Impact
Although 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 2 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 3: The CEO’s Impact on Company Operations and the Bottom Line

CEO’s Operational Bottom-

Actions Impact Line
Impact

� Quality of � Quality of products � Customer

products buying cycles
� Availability of capital
� Strength of to customers � Customer need
customer
relationship � New governmental � Macroeconomic
� Competitor’s regulations conditions
customer
management � Customer � New product
buying habits from competitors

� Strength of customer � Competitor

relationship customer
management
� Supplier delivery
effectiveness � Supplier costs

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

CEO Evaluation 
Figure 4: Most Important Dimensions of
Operational Impact According to Survey
of Corporate Directors
Company Org. Flexibility
Morale and Agility
Company
Image
Customer Research and
Satisfaction Development
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 Measures
The 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
 Oliver Wyman – Delta Organization & Leadership
general principles that leading companies follow
in selecting CEO performance objectives6:
n Go 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.
n Focus 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
n Include 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 5: Leadership Effectiveness
Dimensions at Prudential Insurance
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
Sets the ”tone at the top” in such matters as Enterprise
reputation, ethics, legal compliance, customer rela-
tions, and ensuring results.
Board Relationships
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.
n Define 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
CEO Evaluation
Board members to indicate the frequency with
which the CEO engages in desired behaviors and
to what perceived effect.
n Specify 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, 11–21 percent is
acceptable, 22 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 Methods
Though 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 6 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:
n Does 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.
n Are there collateral benefits to involving the
person or group in the CEO evaluation process?

Figure 6: Multisource CEO Feedback at
Dow Chemical
Purpose Improve CEO’s performance as a
”people” manager, not influence
compensation
Led by Director of global compensation/
benefits
Who is 10-12 direct reports or people
involved who have regular contact with
the CEO
Areas covered Leadership teamwork, commu-
in assessment nication, integrity, development
and coaching, interpersonal
skills, and diversity
Source: Directors Publication Inc.: Performance Evaluation and
Mutual Cooperation, 1992.
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 Process
Effective CEO evaluation requires much more than
clear expectations and clarity on performance
10
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 Process
Step 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.
Oliver Wyman – Delta Organization & Leadership
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.

Figure 7: CEO Evaluation Timeline

Before start of
fiscal year

STEP ONE

� Management team
develops strategic plan
Start of
� CEO specifies personal performance fiscal year
objectives tied to measurable
targets and performance levels
End of
fiscal year � 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 STEP TWO

� Evaluation process is � CEO and

reviewed and adjusted Board review
as necessary for the performance
next year 1st quarter
3rd quarter

2nd quarter

CEO Evaluation 11
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 Implementation
Successfully 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
12
successful and sustainable process. As with any
complex process, there are a number of common
pitfalls to look out for. These include:
n Uncertainty 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).
n Lack 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.
n Disagreement 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 & Leadership
 the Board must agree that the dimensions of similar investment to ensure that the process
performance and objectives used are the right is well thought out and part of the normal course
ones. The ultimate standard by which disagree- of business.
ments should be resolved is by appealing to the
strategy and business needs of the organiza- Summary
tion—ultimately all criteria for CEO evaluation Today’s CEOs find themselves subjected to
should have a direct line-of-sight back to the unprecedented levels of scrutiny and concern.
needs of the business. Statistics on contracting CEO tenure indicate that
this is not a passing phase. Regular evaluation is
n Lack of direct information about non-quantita-
a healthy part of corporate life, however. In fact,
tive performance. Financial and key operational
a forward-looking CEO evaluation process offers
metrics are readily available in most organiza-
great promise—heightened performance account-
tions. However, measures of “softer” aspects of
ability, stronger links between performance and
performance such as leadership effectiveness
rewards, support for CEO development, and bet-
often have to be designed specifically for the
ter Board/CEO relations. Realizing these benefits
purpose of the evaluation. These measures can
requires close attention to detail, though.
be quite effective and informative if based on a
well-understood model of leadership effective-
This paper has defined performance dimensions
ness and developed with appropriate concern
and measures for the CEO, looked at various
for psychometric validity by a professional
means of gathering feedback, and mapped out
trained in attitude and behavioral assessment.
both the steps to implementing the process and
the barriers to an effective evaluation. These steps
Ultimately, the CEO’s behavior and attitude
will facilitate the development of an effective CEO
towards the evaluation is the greatest single
evaluation process that is an important part of the
determinant of the effectiveness of the process.
top leader’s success—and survival.
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

CEO Evaluation 13
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

Criteria Rat i n g 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?

14 Oliver Wyman – Delta Organization & Leadership

Roles and Resposibilities

c r i t e r i a Rat i n g 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?

Content and Measures

Criteria Rat i n g 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?

CEO Evaluation 15
Footnotes
1. Both statistics from The Wall
Street Journal, July 30, 2002.
2. Korn/Ferry International. 28th
Annual Board of Directors Survey,
2001; American Society of
Corporate Secretaries (ASCS).
Current Best Practices, Third Study,
2001.
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-1306-
01-RR, 2001.
5. ibid
6. 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, 2001.
16
References
American Society of Corporate
Secretaries (ASCS). Current Best
Practices, 2001.
Ames, B.C. “The Enron Lesson.”
The Daily Deal, February 15, 2002.
Bailey, D. and Knepper, W. (Eds.).
Liability of Corporate Officers. Lexis
Law Publishing, 2000.
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-1306-
01-RR, 2001.
The Conference Board. Corporate
Boards: CEO Selection, Evaluation, and
Succession. Report No. 1103-95-RR,
1995.
Oliver Wyman – Delta Organization & Leadership
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, 2001.
Cornwall, D.J. “Succession:
The Need for Detailed Insight:
Evaluating a Company’s Chief
Executive Officer.” Directors &
Boards, June 22, 2001.
Hann, D.P. “Emerging Issues
in U.S. Corporate Governance:
Are the Recent Reforms Working?”
Defense Counsel Journal, April, 2001.
Goldstein, M.L. “Grading the CEO.”
Industry Week, January 21, 1985.
Korn/Ferry International.
Evaluating the Chief Executive
Officer, 1998.
Korn/Ferry International.
28th Annual Board of Directors
Survey, 2001.
Lawler, III, E.E. “Appraising Board-
room Performance.”
Harvard Business Review,
January, 1998.
Lear, R.W., & Yavitz, B. Boards on
Trial. Chief Executive, October, 2000.
Lipton, M. and Lorsch, J.W. “A
Modest Proposal for Improved
Corporate Governance.” The
Business Lawyer, November, 1992.

Lorchner, Jr., P.R. “Lessons in

Evaluating CEO Performance:
Tell It Like It Is.” Directorship,
October, 2000.

Muschewske, R.C. “CEO Evalua-

tion: A Process that Works.” Direc-
tors & Boards, June 22, 1995.

National Association of Corporate

Directors. Performance Evaluation of
Chief Executive Officers, Boards and
Directors, 2000.

Orlikoff, J.E. and Totten, M.K.

CEO Evaluation and Compensation.
Trustee, 1996.

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, 2001.

Ward, Ralph D. Improving Corporate

Boards. New York: John Wiley &
Sons, 2000.

CEO Evaluation 17
18 Oliver Wyman – Delta Organization & Leadership
CEO Evaluation 19
 To obtain further information about
Oliver Wyman – Delta Organization
& Leadership, please contact us at
About Oliver Wyman – deltainfo@oliverwyman.com or
the telephone numbers below.
Delta Organization & Leadership
Visit us online at
www.oliverwyman.com
Oliver Wyman is building the leading global management
consultancy, combining deep industry knowledge with
specialized expertise in strategy, operations, risk management, North America
organizational transformation, and leadership development. Toll-free: 1.866.909.8239
Delta Organization & Leadership works collaboratively with
Atlanta Philadelphia
CEOs and senior executives to meet the challenges of
building talent, accelerating organizational performance, Boston Portland
and driving business success. Our Executive Learning Center
provides top-tier executive education around the world, Chicago San Francisco
designing and implementing customized programs that Montreal Toronto
develop the leaders you need to compete and grow.
New York

We bring deep expertise and a track record of high-impact

solutions that minimize business risk by: United Kingdom
London: 44.20.7343.9500
n Maximizing CEO and senior team effectiveness

France
n Making your strategy work Paris: 33.1.70.75.01.30

n Building an effective board

Germany
49.69.710.447.600
n Managing the business of change
Frankfurt Munich
n Redesigning your organization
Hamburg
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 © 2003 Delta Organization & Leadership

LLC, a member of Oliver Wyman.
All rights reserved.