The Board of Directors has one employee – the CEO (or equivalent top management position). The CEO is the Board’s voice in setting the tone for the organization, and the role is critical to the organization’s ability to achieve its strategic goals. It is the Board’s responsibility to hire/terminate, supervise and evaluate the CEO, as well as, determine appropriate compensation.
In order to evaluate performance, the board must establish clear expectations for the CEO, which outline the responsibilities, duties, authorities and strategic goals. Best practice is to establish expectations in advance, discuss with the CEO and document in writing. If expectations will include key metrics, such as growth, net income or number of donors, the initial benchmarks and the method to determine should also be documented.
On an annual basis, the board should evaluate the CEO’s performance against expectations. This would include gathering feedback from board members and measuring any metrics against the benchmarks. Feedback may also be gathered from staff or external stakeholders in some circumstances. The board should discuss its evaluation with the CEO to ensure that any other relevant information is considered.
Finally, the board should use the performance evaluation to determine appropriate compensation, or whether a change in the role is needed. This is also a great time to set expectations for the next performance year and address any areas that need improvement.
One final note: evaluating CEO performance in a not for profit organization is also a valuable process, even if the role is performed by a volunteer. Setting clear expectations with volunteer leaders is important to ensure that everyone understands how the role will be fulfilled and creates a mechanism to address any concerns that may arise.
Other articles on Board Governance to read:
- How big should our board be?
- How often should we review our policies?
- How do I find board members?
- What does oversight mean?
- What does risk management mean?
- What are the top internal control tips for small organizations?
- Donations & Fundraising - what is your policy?
- Why is effective budgeting important?
- How much should a not for profit organization hold in net assets?