Many Board members agree that measuring a CEO’s abilities to establish strategic direction, build a management team, and lead effectively are more critical than measures of operational performance. Yet most boards still tend to rely on financial and stock performance as the means of evaluation. A systematic approach to leadership/management assessment—coupled with a clear development plan—will help to ensure stronger CEOs and healthier long-term futures for organizations. The following factors contribute to a successful assessment:

1. Assign accountability for assessment, design, administration and management to the Compensation or Governance Committee. Ensure they identify key parameters such as: goals of the assessment process, timeframe, measures, participation (including possible third-party), method for communicating outcome, and developmental actions to CEO.
2. Communicate the objectives, process and intended outcomes of the assessment—including pay linkage—with the CEO.
3. Balance leadership/management assessments with financial and operational results. Traditionally, assessments influence incentive pay, while results are used to address development and identify actions that will boost the effectiveness of the senior management team and the business.
4. Focus on development along two basic dimensions: 1) general leadership/management competencies, e.g., leadership, strategic vision, planning execution and problem solving; and 2) ethics/integrity; and effective execution of the CEO role, e.g., financial acumen, Board relations, external relations, and human capital development. Define these competencies with behavioral examples making the intent and basis for measurement transparent.
5. Assimilate multiple perspectives, including the CEO’s self-appraisal and the input of the CEO’s direct reports. Enable respondents to both rate performance on key indicators and provide “free-response” feedback.

Finally, CEO assessment is most successful when it is recognized as an annual process that includes three phases of dialogue between the Board and the CEO: initial setting of expectations, in-cycle appraisals (to check progress), and year-end assessment.

More information on CEO assessment, including a model assessment process, can be found in: “Taking Inventory of the CEO” and “Assessing CEO Performance: It Goes Beyond the Numbers.”