Approved by the Board of Governors Dec. 5, 2023
Statement of the Issue
Board evaluation of the hospital or health system CEO is an important way to ensure strategic alignment and to monitor organizational and individual performance. Its intent is to align the CEO’s understanding of the board’s performance expectations and receive feedback on the board’s assessment of progress and improvement toward attaining the mission and vision of the organization as well as realigning the strategy, as necessary. In an environment characterized by unprecedented challenges, risks and uncertainty, CEOs are faced with new and more complex responsibilities. Concurrently, public and regulatory expectations demand that boards demonstrate higher levels of accountability for core responsibilities such as strategic plan development, talent management and oversight. The evaluation of leadership performance is a critical governance and business process that results in a shared vision, feedback, and a consistent review and learning process. As a result, the board’s evaluation of the CEO requires a thoughtful, well-designed, ongoing system for measuring leadership effectiveness as it relates to the attainment of established goals and objectives.
Policy Position
The American College of Healthcare Executives believes the board of a hospital or health system should regularly monitor organizational/individual performance, providing feedback as needed, and at a minimum annually, provide a formal evaluation of the CEO’s performance, in accordance with the following principles:
- Periodic review of organizational/individual performance instills a transparent process around performance expectations so that neither party is surprised during the formal annual evaluation process.
- Enhancing the working relationship and information-sharing between the CEO and the board is critical to success, and it should not be a one-directional process.
- Continuous feedback and learning are critical to effective board and CEO alignment related to strategy, performance and results as well as the need for continuous improvement.
- A formal annual evaluation should include an assessment of the CEO’s performance on core leadership responsibilities consistent with the desired culture, the CEO’s job description and annual performance goals that may be outside of an executive incentive plan.
- If not already established through the CEO’s executive incentive plan, the board should establish a balanced scorecard of well-defined, measurable objectives to evaluate CEO performance and provide for regular updates and feedback to support a continuous cycle of performance evaluation.
- Certain leadership traits such as judgment, communication and diplomacy may require board assessment. To the greatest extent possible, the board should evaluate the CEO’s performance based on relevant, multifaceted scorecard metrics relating to performance against the strategic plan, including but not limited to community, organizational and/or individual professional objectives. Certain leadership traits such as judgment, communication, talent management, and diplomacy should also be reviewed as part of the board assessment.
- Any evaluation of the CEO should also include assessing his or her performance in establishing a culture of diversity, equity, inclusion and belonging in the organization that is aligned with the vision, mission and values of the organization.
- Providing the CEO with consistent feedback should be a continuous process involving the board chair at a minimum and/or other appropriate board members who may confer with the CEO regularly.
- A continuous evaluation process facilitates timely, meaningful feedback on aspects of board governance and strategic planning, and it establishes expectations that assist in avoiding future misunderstandings. The overall goal should be that there are no surprises at year-end and both the board, and the CEO understand the final results.
- The board should participate by providing annual feedback through a formal annual process that collects and collates individual board member assessments of CEO performance, which are considered through a documented process with discussion.
- The evaluation of the CEO could encompass a "360-degree" methodology, gathering input on their performance from the Board, medical staff leaders, senior management and the CEO.
- The board or a sub-committee of the board should align pay and performance as part of the formal annual performance review process.
- Adjustments in compensation should be based on an independent, fair market value assessment and assess a balanced scorecard of goals and objectives established as part of the annual and ongoing planning process.
- As part of the CEO evaluation process, the CEO should complete a self-evaluation; a board self-evaluation process should also be considered. Self-evaluations of the full board and individual members provide context to the CEO performance evaluation process by assessing the extent to which board members perceive the board provided clear expectations, effective guidance and feedback to the CEO throughout the year.
An important responsibility of a hospital or health system board is the development and implementation of a documented, well-designed, ongoing process for providing feedback to the CEO and measuring progress and achievement. These principles guide a process that increases communication between the board and the CEO, which can improve the probability of organizational success.
Policy created: November 1993
Policy updated: December 2023