Chapter 8

CEO Performance Evaluation and Executive Compensation

CEO Performance Evaluation1

Regular, purposeful CEO performance evaluation by the board is a cornerstone of effective governance. According to Spencer Stuart’s 2011 Board Index, 94% of S&P boards surveyed said their CEO’s performance is evaluated annually. Evaluation of individual directors is becoming more common; 34% of boards did it in 2011, up significantly from previous years. Twenty-one percent of boards now review performance at every level—the full board, committees, and individual directors.

Performance evaluation at the CEO level is difficult. Rivero and Nadler (2003) note that the difference between a good evaluation process in which everyone wants to participate and one ...

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