The Quality-Cost Connection
Don’t overlook CEO performance evaluations
How to design an effective evaluation process
By Patrice Spath, RHIT
Brown-Spath & Associates
Forest Grove, OR
An essential factor for a successful health care organization is a good relationship between the governing board and chief executive officer (CEO). The CEO is the primary agent of the board and is the single most influential person in creating an outstanding health care institution. Selection, evaluation, and support for the CEO are among the board’s most important responsibilities. The CEO and board must function as a team.
The CEO is charged with carrying out board policies, while the board members look to the CEO for guidance and leadership. Mutually agreed-upon and clear descriptions of roles and responsibilities help to ensure open communication, confidence, and trust. The governing board is responsible for defining CEO expectations in written policy, the job description, and in annual goals.
Most health care organizations have very comprehensive programs for evaluating their employees. Surprisingly, many of these same facilities do not conduct performance reviews of the senior leaders, or if they do, the evaluations are irregular and extremely subjective.
The governing board provides important support for the chief executive by performing regular evaluations and giving constructive feedback. Formal evaluations may be scheduled annually, although ongoing communication is important to prevent problems from festering.
The primary purpose of a formal evaluation is to bring the CEO and the board together to discuss how their performance and priorities contribute to the safety and effectiveness of health care services for patients and the community. The emphasis should be on identifying what works well and what needs improvement.
Objectives of the CEO evaluation process include:
- Assess how well the organization is fulfilling its mission.
- Examine and re-define, if necessary, goals for the organization and the CEO.
- Support the CEO by providing constructive feedback on performance.
- Develop plans to address issues that arose during the evaluation process.
- Provide an opportunity for the board to learn how its performance affects the board/ CEO partnership.
- Foster communication between the board and CEO.
The evaluation process
There is no single right way to assess CEO performance. Differences in style, temperament, organizational complexity, and culture will lead to different methods and procedures. Whatever evaluation process is used, it should be developed jointly by the CEO and the board and mutually agreed to.
The following questions need to be answered in designing the evaluation process:
- When should the CEO be evaluated?
- What should the criteria be?
- What types of instruments, if any, should be used?
- Who should conduct the evaluation?
- Who should participate in the evaluation?
- How should the results be communicated?
- Should the evaluation be tied to compensation or contract extensions?
While ongoing evaluation occurs naturally as the CEO and board members discuss issues, it is important to schedule a formal evaluation session at least annually. This evaluation helps the chief executive understand areas for improvement. The formal evaluation also helps the CEO know where the board may not be receiving a sufficient amount of information.
Typically, the board officers or a committee of the board leads the evaluation process and reports on the evaluation to the entire board. Because the CEO acts both directly and indirectly through others to manage the organization, evaluating this person’s performance is inevitably linked to evaluating the organization’s performance as a whole.
Developing the criteria
Many boards incorporate the CEO evaluation into the annual review of organizational performance and goal setting for the coming year. The criteria used to evaluate the CEO must be defined well before the actual evaluation takes place so that expectations are clear. Issues of governance and accountability are very important in today’s health care environment, and the board should evaluate all aspects of the CEO’s job.
Evaluation criteria can be derived from the following:
- Progress toward the mission, vision, and institutional goals (financial and quality goals).
- Adherence to organizational policies and operational procedures.
- The CEO’s job description and/or the policy statement on his or her roles and responsibilities.
- The CEO’s annual goals and objectives (established each year in consultation with the board).
The board also may gauge how well the CEO develops, attracts, and retains an effective top management team and how the CEO relates to the medical staff and other clinical staff, the media, and community leaders. Many hospitals involve only other board members directly in the CEO evaluation process. Because a failing executive can hide problems from the board more readily than direct caregivers, some boards of directors involve physicians and staff in the review process.
Use wide range of sources for feedback
Still others go outside the organization to gather information regarding the performance of the CEO from community leaders, collaborating organizations, volunteers, or former patients. Feedback from board members, physicians, staff, and external groups can be gathered through survey-type assessments. (To see an example of a CEO evaluation survey tool, click here.)
How useful is your instrument?
It is important to understand the shortcomings of survey instruments such as this. First, they are based on people’s perceptions, and frequently these people have very limited views of the executive director’s performance. A second shortcoming is the quantitative nature of the questionnaire. It tends to attribute the same level of importance to all activities, and success with smaller tasks can inappropriately compensate for a big failure.
For example, if the CEO does wonderful work with community leaders, but has allowed patient safety issues to remain unresolved, the problem will only show up as one or two negative "grades" and won’t affect the overall score. Because of these shortcomings, it’s important to see the CEO performance assessment as the starting point for discussion, not the end result. Evaluation instruments and checklists can be very helpful tools to help people clarify their thoughts. However, the discussion of what the results mean and what can be improved generally is more valuable and important to the board than the specific numbers or ratings obtained from surveys.
Confidentiality is vital
The CEO evaluation should be confidential with the evaluation session taking place in closed sessions of the board. Discussions between board members and the CEO generally are the most valuable portion of the evaluation process and provide insights into ratings or written comments. Discussion will include a review of the evaluation results as well as general questions such as:
- What is your assessment of the past year, both successes and things that didn’t go well?
- What is the organization’s most significant achievement for the year?
- What difficulties were encountered?
- What aspects of the CEO job are most interesting and rewarding?
- What aspects of the CEO job are most frustrating and least interesting?
- What do you, as the CEO, need from the board to ensure further success for the organization?
Regardless of the evaluation process used, don’t forget that executive directors need feedback all year round. Like any employee, CEOs need praise and acknowledgment for work well done and immediate feedback when problems arise. In the best situations, the board president and trustees have a good working relationship with the executive director and constant feedback flows in both directions. The annual formal evaluation is an important component of, not a substitute for, that relationship.
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