How does a CEO get evaluated

The article gives some basic information on How does a CEO get evaluated. The position of CEO is indeed one of great responsibility and vast duties. Unlike a lower-level employee whose job performance is easily tracked, and upon whom a supervisor could complete an employee appraisal, evaluating the chief executive officer is not an easy task by any means. But having said that, many times the board has specific quantifiable objectives that must be met in a certain time frame in order for the CEO to continue with a company.

How does a CEO get evaluated

When a new chief executive officer is hired, the board generally knows what needs to be done and has a list of goals that must be accomplished. There is no doubt that these goals are the direct mandate from the most vocal and powerful shareholders. As part of the contract between the CEO and the corporation, there may exist a section that involves the specifics of the CEO’s future performance. For example, the shareholders may wish to expand and expect the CEO to have five new locations built within the next year.

Performance would be evaluated on how close or how far he/she is from reaching that goal. Further, the company may be top heavy with too many levels of management, and the contract stipulates that the CEO must decrease management salaries by twenty percent in the next four months. Obviously, if this goal has not been met, the CEO has not done the job for which he/she was hired.

Aside from contract-specific goals, in general, a CEO will be evaluated on how well the organization is managed. Historically, that has meant – how much do the shareholders earn? Can the CEO crank out better earnings for the shareholders? Is the CEO capable of reducing costs and therefore increasing margins? Does the CEO spend a lot of money with little returns, or are the financial decisions advantageous to the corporation?

Another way that boards and shareholders evaluate their CEOs is with historical data. Let us assume that a new CEO has transitioned into the position through retirement or death. So in essence, the company should at least maintain the status quo or improve. If the CEO cannot do either of these, then based on the performances of the past CEO, the board would have to assume that the performance is sub-standard.

Emerging trends and consumer shifts in technology will also play a role in evaluating CEOs. Obviously when companies who manufactured typewriters came to the realization that personal computers were making the typewriter obsolete, the CEOs had to quickly find ways to capitalize on the new market. He/she had to take the company in a new direction or accept the death of the company. For someone who had the vision to be move forward and save the company, the shareholders would indeed be grateful.

Employee satisfaction is another benchmark upon which a CEO is evaluated. There are still companies that offer excellent working conditions, and should a new CEO cause a union to take over, that would be an issue. Realistically, in many corporations, however, today’s corporate climate erodes the importance of employee benefits almost to the point of non-existence.

Basically, there are many ways to evaluate the CEO and these can be dictated by the shareholders themselves, governments laws, changing societal views, and new technology.

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