Hard as it may be to believe, most chief executive officers today receive their annual feedback in the form of a bonus check.
Maybe it’s a great bonus. Maybe it’s less than expected. Either way, when the chair of the company’s board compensation committee swings by to drop off an envelope before rushing out to catch a plane, a CEO is left wondering: How should I interpret this?
Chances are, you have a better system in place. Or want to. Still, delivering feedback can be difficult; we regularly field questions from boards about how to make that process better and more productive.
The first step, of course, is to conduct a proper review. We recommend a structured CEO 360, which incorporates a self-assessment, the perspective of direct reports, and the observations of board members. But, once you have that information, what should you do with it?
Here are three actionable ideas to guide your approach to delivering a CEO annual review:
1. Seeing the data isn’t enough. Once you’ve digested the review and thought about how its conclusions compare to your expectations, decide how you want to share that information with the CEO so they can think about what they need to do to grow as a leader and improve their performance. Resist the temptation to discuss every detail. Instead, prioritize and align with the other board members on the key topics to convey. Pick your spots.
2. It takes two. In our experience, it’s best to have two board members deliver the performance review. Having a second person in the room allows for a more thoughtful, balanced discussion and reduces the risk of the review process devolving into a “he said/she said” scenario. Any more than two board members, however, might change the power dynamics in the room. You never want to make your CEO feel ambushed.
In addition to the board chair, we recommend including the head of the board’s compensation committee, not because that person controls the checkbook but because they also oversee talent acquisition, recruitment, and development. (If your compensation committee doesn’t include these things, it should.) That way, there’s someone with expertise in the room when you talk about goals and growth.
3. Set goals that go beyond the green. The annual review is a great place to set goals for the coming year. Don’t default to the obvious and ever-present business benchmarks, such as revenues, market share, and profits. If you’re offering feedback on a CEO’s performance as a leader, but don’t help them set goals that relate to their personal development, you’re sending mixed messages.
When you do discuss personal development, offer the board as a resource. Maybe someone on your board is a great communicator or knows a lot about setting strategy or is well known for creating a culture that inspires high performers. In other words, don’t just be the bearer of bad new; make sure you can help your CEO fill any gaps you’ve identified.
Delivering performance reviews is hard; often, there is at least some constructive feedback to share, if not outright mandates for change, and people have a natural tendency to avoid having to convey criticism.
Even the best performing CEOs can use good feedback if it’s fair and delivered without judgment. A thorough review process is less likely to yield incomplete or biased conclusions. Assuming good intentions on all sides, CEOs should be excited at the prospect of hearing a qualitative and quantitative assessment of how they’ve performed and how they can do better. If they’re not, that’s a problem.