*Editor's Note: This blog has been updated as of April 19, 2021 for accuracy and comprehensiveness.

Supporting the CEO and assessing their performance is vital to strengthening and supporting their role and relationship with the Board. Check out our board responsibility blog series here. For now, let’s take a look at the CEO and assessing board performance.

Hiring the CEO

The second responsibility of a not-for-profit Board is to hire the Organization's CEO. The CEO and Board create and update the strategic plan. The CEO works to implement the operational plan to achieve the strategic objectives. The CEO is also responsible for managing the organization's daily activities. The Board is the CEO's supervisor and mentor and must help the CEO manage the organization successfully. An annual formal assessment is part of that process.

What is a formal evaluation?

Don't let a fear of conflict, a lack of tools, or the lack of tradition keep you from the CEO's formal evaluation. This evaluation is one way that the Board fulfills its duty to lead the organization. It provides an excellent forum and opportunity to set new annual goals and monitor goal achievements. The formal evaluation is one of the best ways for the CEO to understand the Board's perspective. It will help the CEO understand their strengths and what areas to improve. The specifics of what you include in your CEO evaluation and how you go about accomplishing it are less critical than the commitment to perform a formal annual evaluation.

Key steps in the evaluation process

1. The first step is to establish an annual evaluation policy.
2. The second step is to provide feedback on performance expectations and goals. Linkage to previous evaluation(s), job description, board policies, goals, and the organization's strategic and operational plan is vital. The goal is to recognize how well the CEO performs and identify areas for improvement.
3. The next step in the process is to determine an approach to evaluating the CEO. In many respects, the Board is continuously evaluating the executive director, whether in a formal or informal meeting, discussions with volunteers and stakeholders, donors, etc. Attention to separate personal judgments from observable data is critical.

Performance survey or questionnaire?

Some organizations use a CEO performance survey or questionnaire sent to individuals and groups (including fellow Board members) to accumulate feedback. The questionnaire is usually consistent with the job description, the CEO goals, the annual plan, or all three.

Other organizations base their annual assessment primarily on evaluating the CEO's performance compared to the expectations. Care must be taken with this approach to properly factor in environmental changes that may require a modification from the original assumptions.

The third approach to CEO performance evaluation is assessing their strengths and weaknesses. This approach is broader in context and hopes to strengthen the organization by supporting the CEO. Organizations tend to use a combination of these three approaches.

Keep the message consistent!

Ultimately the Board (or a committee) will meet with the CEO and document their meeting. It is crucial to be sure that everyone is on the same page so that the message is delivered and does not stray off course. The Board or committee needs to meet to evaluate and decide what topics will be covered and emphasized in communication the CEO's evaluation.

Usually, compensation is part of the annual CEO review. However, many believe that the mission is critical and separating the performance evaluation from the compensation negotiation is appropriate. Placing too much emphasis on either one reduces the performance evaluation's effectiveness.

Ultimately, the CEO's compensation makes a statement about their performance value. The Board should ensure the executive compensation process meets the 3 IRS requirements.

Read more on not-for-profit boards: Ten Basic Responsibilities of Nonprofit Board Series