How to manage your CEO's performance

KPIs are statements you can use to evaluate if your CEO is doing a good job.

They make it clear to your CEO and board what your entity’s priorities are now and in the next 1, 3 and 5 years. This should be guided by your entity's business and strategic plans.

Aim for 4 to 6 KPIs that cover your board’s biggest priorities, with smaller KPIs that go under these if required.

Good KPIs often use the SMART method:

• Specific – KPI is clear and unambiguous
• Measurable – KPI has something you can use to measure progress
• Achievable – KPI is something the CEO can realistically achieve
• Relevant – KPI is relevant to your entity’s purpose
• Time-bound – KPI has a date it needs to be achieved by.

Your KPIs also need to:

• be developed by the CEO and your board
• reflect your board’s top priorities
• highlight outcomes and the way you want the CEO to achieve them
• use language that makes sense to the CEO, board and anyone coming into any of these roles
• be reviewed quarterly to reflect changes in your entity, government policy and the environment in which your entity operates.

A performance plan is an agreement developed by your CEO and board that lists the priorities and outcomes the CEO needs to focus on.

It should also include a development section with a focus on leadership.

Your board can use this plan to assess your CEO’s performance against the board’s priorities.

Every plan is different.

To develop your CEO's plan, you can tailor this example of a performance plan for Victorian Public Service executives to your CEO's role.

Update the plan every year to reflect new strategic directions, risks and opportunities.

But be realistic in how long it can take for a CEO to deliver outcomes.

In addition to the performance plan, make sure you consider the following:

Don’t rely on the plan alone to steer performance

A performance plan alone won’t stimulate or steer your CEO’s performance.

Along with plan, your CEO should regularly:

• have conversations with your board
• get feedback and support from your board and peers
• take part in development activities.

Don’t use the plan to replace their position description

Only put the accountabilities and outcomes your board thinks the CEO should focus on the most.

Don’t put detailed descriptions of all your CEO’s accountabilities in the plan. These belong in their position description and employment contract.

The plan is not your only document to assess performance

When you assess the performance of your CEO, don’t just focus on what’s in the plan.

Look at all of their accountabilities, behaviours and other relevant factors.

This is especially important if you make a significant decision on their performance, such as an extension or termination of their employment.

As the CEO is in charge of your entity’s operations, it's important for your board to establish a strong working relationship with them.

This is a 2-way relationship:

• Your CEO advises your board so directors can fulfil their obligations.
• Your board advises and directs your CEO to help them achieve outcomes in line with your vision.

Your board is responsible to support them as follows:

Provide feedback

Give your CEO feedback regularly.

Make it informal, focus on what’s working well and what your CEO could consider doing differently.

Mentor them

Your board may support and mentor your CEO, particularly if:

• they are a first-time CEO
• they’ve never worked in the Victorian public sector
• your entity has difficult challenges.

Your board may also assist the CEO to establish relationships with other leaders.

Support development

Your CEO should keep their knowledge and skills up to date.

Your board can prompt the CEO to identify what development they need. This may include executive workshops, conferences, coaches or mentoring.

These can help the CEO maintain their knowledge of your entity’s industry and leadership in the public sector.

Your CEO can also develop specific skills such as speaking to the media or leading in an emergency.

Opportunities for professional development help to attract and retain CEOs.

When you look at the evidence of your CEO’s performance, consider:

• what is happening now
• what may happen in the future if current CEO behaviours continue.

Here are some themes you can focus on:

How the CEO has achieved outcomes

• Are their methods acceptable and sustainable?
• At what cost has your CEO’s performance been achieved?

Impact of current circumstances on their performance

• Would your CEO perform better or worse if significant parts of your entity or environment were different?

Wellbeing of employees

• What has your CEO done to ensure the wellbeing of employees?

What has your CEO done to ensure:

• equal employment opportunity
• occupational health and safety
• employee privacy is maintained.

Maintaining public trust

• What has your CEO done to maintain the public’s trust in the public sector?
• Has your CEO behaved in a way that would generally be expected of a public sector CEO?

What has your CEO done to ensure:

• potential conflicts of interest are managed
• procurement processes are followed.

Use evidence from several sources to assess your CEO’s performance, including your CEO’s regular reports to your board.

Consider:

Achievement of key business outcomes

See if you can link your CEO’s actions, decisions and behaviours with outcomes your entity achieves in its corporate or business plans.

Interactions with your board

Consider the accuracy, breadth and timeliness of the CEO’s advice, formal reports and other interactions with your board.

Audit and risk committee reports

Look at how your CEO leads your entity in the use of public funds, compliance with relevant laws and managing risk.

Workforce metrics

Assess how your CEO leads your entity in terms of your entity’s culture and employee development.

Key metrics include:

• absence rate
• average time to fill vacancies
• internal movement rate
• retention rate
• why people leave the entity.

Incident reports

Look at how well your CEO manages your entity’s employment risks.

Consider occupational health and safety incident reports and assessments, and staff grievances.

The executive team

For insight on your CEO’s leadership, evaluate your executive team’s skill composition, stability and performance.

Specifically, look at the areas of organisational design, delegation and risk management (especially succession risk).

Employee engagement and entity culture

Employee engagement gives you insight into your CEO’s personal style and the kind of organisational culture they promote.

Get information on employee engagement and opinions about your entity in its People matter survey results.

Relationships

Consider the breadth and quality of your CEO’s relationships with others.

This may include departments, stakeholder groups, peers, professional networks and unions.

Ad hoc and informal insights from stakeholders

Seek feedback from stakeholders.

These may include CEOs of other public sector organisations, ministers, senior employees and community groups.

360-degree survey results

A 360-degree survey is when you ask a range of people who have worked with your CEO to give feedback on what they think of their performance.

Use the insights from the survey to look at your CEO’s character, reputation and impact across your entity.

Depending on the scope of the survey, the results may also provide insights on networks and partnership organisations.

Illegal behaviour can include fraud, theft, assault, other crimes, sexual harassment and discrimination.

You may want to investigate this further and refer to authorities if:

• an audit reveals inconsistent record keeping
• someone complains about illegal behaviours by the CEO.

Bullying is repeated, unreasonable behaviour directed at an employee or group of employees that creates a risk to health and safety.

You may want to investigate this further if:

• someone complains that your CEO has exhibited bullying behaviour
• employee survey results show high levels of reported or perceived bullying
• employee data shows high levels of stress, sick leave or turnover.

Your CEO may show they’re undermining the government when they consistently contradict or dismiss policy directions of the government.

You may want to investigate this further if your CEO:

• is or has been an active and vocal critic of the current government
• talks about government as a barrier to be overcome, subverted or undermined.

Your CEO may show signs of being a high conflict person when they create problems and disagreement, rather than solutions and agreement.

You may want to investigate this further if your CEO:

• blames others for situations
• presents arguments based on emotion
• puts others down
• has little insight into their own behaviour
• is unable to accept negative feedback.

Your CEO may show signs of recklessness if they act impulsively and without evidence or consideration of options and the law.

You may want to investigate this further if your CEO is unable to provide a rational explanation for decisions they’ve made.

Your CEO may act in ways contrary to these values or public sector employment principles.

The values and employment principles support employee wellbeing and public trust in the integrity of your entity.

If your CEO is new to the public sector, they may not be familiar with the public sector values or employment principles. Take steps to ensure they are.

You may want to investigate further if your CEO doesn’t implement policies on:

• equal employment opportunity
• occupational health and safety
• privacy
• conflicts of interest
• procurement.

Your CEO may show signs of inappropriate competitiveness if they seek to achieve results by preventing others from achieving results.

You may want to investigate this further if your CEO:

• has no or few networks or working relationships with other similar public entities
• uses competitive language when talking about other public sector entities.

Your CEO may show signs of rigid thinking if they consistently promote past actions and strategies as being superior without considering whether they apply now.

You may want to investigate this further if your CEO can’t accept the value of new ways of working.

Your CEO may be inappropriately micro-managing staff if they consistently give detailed instructions to employees on how to do a task, instead of letting them work out how to do it.

You may want to investigate this further if your entity’s employee engagement survey results show employees don’t feel empowered to do their work.

Your CEO may display disrespectful behaviour if they are consistently rude or dismiss people who want to communicate or contribute ideas or expertise.

You may want to investigate this further if your entity’s employment data shows:

• high levels of bullying
• high levels of stress, sick leave or staff turnover.

Your CEO may show signs they’re disengaged or disinterested in their role if they don’t take action or accept responsibility for what they’re accountable for.

You may want to investigate this further if your CEO:

• shows little or no progress in achieving outcomes that your board identifies as high priority
• blames others for failures in their performance.

This result means the CEO has:

• met their key performance indicators (KPIs)
• demonstrated that they met their KPIs because of their decisions, directions and behaviours.

Your board doesn’t need to take any actions and can ask the CEO to continue performing as they have.

In cases of high performance, the board should consider how to incentivise and retain the CEO. In most cases, public entity executives are not eligible for bonuses.

This result means the CEO has:

• met their KPIs
• demonstrated that they met their KPIs because of their decisions, directions and behaviours

However, due to changes in your entity or environment, the CEO will need capabilities they don’t have now or need to strengthen.

Your board can ask the CEO to:

• take part in development activities
• ensure your entity’s management team has the capabilities to address emerging challenges and compensate for CEO capability gaps.

If changes to your entity or environment require significant changes to the nature of the CEO role, consider if a work value assessment under is required under the Public Entity Executive Classification Framework.

This result means the CEO has met their KPIs, but not because of their own decisions, directions and behaviours.

For example, other people in the CEO’s management team may have been performing CEO tasks, or the results were due to a relatively easy period.

Your board can:

• identify how likely it is that the factors that contributed to the CEO’s performance will change in the future
• identify the ways in which the CEO will need to become more active in their role and modify their KPIs to reflect this.

This result means the CEO has:

• met their KPIs but achieved them using behaviour that is unacceptable.

Assess if the behaviour provides cause for your board to terminate the CEO’s employment.

If the behaviour isn’t sufficient to terminate their employment, work closely with your CEO to correct the behaviour. This may involve mentors, coaches and other development activities.

Rewrite the CEO’s KPIs to make it clear what type of behaviour your board expects.

This result means the CEO hasn’t met their KPIs due to circumstances outside their control.

For example, due to a funding cut or change in the laws that affect your entity.

Your board can look at the extent to which your CEO’s decisions, directions and behaviours in this situation were justified, in light of their employment contract.

This result means the CEO:

• hasn’t met their KPIs due to their own decisions, directions and behaviours
• is unwilling or unable to change their way of working in the future.

You board can:

• re-examine the evidence that supports this assessment
• gather more evidence
• consider if you need to terminate their contract and appoint a new CEO.