INSIGHTS

Results vs. Impact:

The challenge of assessing and rewarding CEOs in turbulent times (and in good times too).

Ailsa Forsgren (Laulima Consulting) & Rachel O’Connor (Watson Board Advisors)

Boards and CEOs tend to agree: results count, and rewards should follow.

But CEO performance is about more than just delivering results. The CEO contributes to shaping the health and future of a company in ways that are harder to measure, yet have meaningful long-term impact. So how should boards assess CEO performance, and reward for that performance, when results are only part of the picture?

This gets sharper in turbulent economic times, when a CEO may be performing brilliantly, yet falls short on desired profitable growth or other measurable impacts. When planning for an unpredictable year ahead, a board may wrestle with how to keep a strong CEO engaged and committed if rewards are strictly tied to planned results.

At Watson and Laulima, we see different aspects of this picture in our work with clients. We teamed up to offer a shared view to help guide boards as they navigate CEO performance management with clarity and impact in 2025, and beyond.

Let’s start with why this matters.

We hear some familiar refrains from clients who reach out to us about their experiences with CEO performance management.

• The performance review feels like a negotiation every time – why do the board and the CEO not see the results the same way?
• The process of selecting and calibrating lots of metrics and goals is a heavy lift that somehow doesn’t add up to the actual performance experience – why are our efforts in the process not paying off?
• The successive positive performance reviews that precede termination of employment – why didn’t we see the issues sooner?
• The extensive process that feels like merely checking the box – why are we doing this and where is the value-add?

Most boards feel confident in executing the process – the challenges are in the outcomes. A picture emerges when we look at the research: CEOs are being exited sooner and more often, successors are failing, and behavioural challenges are equal to inferior results as reasons for exits.

Given a CEO’s outsized impact on the company – often lasting well-beyond their tenure – failure costs bitterly. And by the same logic, even incremental gains in CEO performance can pay off in an amplified way, over the long term.

That’s why anything boards can do to guide, strengthen and accelerate CEO performance tends to be worth doing well. Beyond supporting pay decisions, CEO performance evaluation is an opportunity to send the CEO a clear message about what is important, offer feedback, and support their continued growth and development.

In 2024, more CEOs left their roles than in any other year over the past two decades in the US (1,250).

Why not just look at business results?

Scandals and bad behaviour are now equal to or leading poor financial performance as reasons for exits.

Some argue that because the CEO leads the whole enterprise, the company’s performance is the CEO’s performance. By this logic, there is no need for more than a simple process; the execution of annual business plans and budget achievement is enough to indicate enterprise-wide performance.

But CEO evaluations can – and should – give us more than that. Certainly, a common and important purpose is to link compensation outcomes to performance, but they also:

• Generate meaningful alignment (within the board, and between the board and CEO) around what success looks like beyond short-term business results, including leadership behaviours and long-term objectives.
• Build a shared view of how things like market conditions and unexpected events have impacted performance and results; what was or was not in the CEO’s control, what could have been anticipated or mitigated, and what that implies for performance.
• Develop a consensus view of the CEO’s performance, strengths and development areas.
• Provide clear feedback to help strong leaders become even stronger, and to prioritize investments in development, succession or other talent actions.
• Uncover blocks or frustration points that can be addressed, including in the Board-CEO relationship.
• Provide a platform for candid conversations around the CEO’s personal plans, intentions, and engagement.

These benefits only come when the evaluation is more than just a recap of enterprise-level results. Companies vary in terms of whether they approach CEO performance evaluation this way, and how this broader view of performance factors into compensation outcomes.

Embedding individual performance into the evaluation

Most companies have CEO performance assessments on paper; the difference is in how thoughtful and effective a process it is. The biggest opportunity lies in the individual performance component, where companies have the opportunity to look beyond financial results and other quantitative, enterprise-level measures of collective success, and consider performance expectations specific to the CEO.

• These expectations can be highly quantifiable and measurable, such as progress on long-term strategic initiatives with associated milestones or outcomes. For example: Did the CEO close a key acquisition? Deliver a market expansion strategy? Launch a critical tech platform? Support succession readiness by naming or developing top internal candidates? These are clear signals of impact.

George Weston outlines individual performance expectations that include overall management of the corporation, role in setting and executing corporate strategy, achieving the annual financial plan, and advancing the succession plan.

• These expectations can also be less quantifiable and measurable, requiring more board discretion and judgement to evaluate the degree of success. For instance: Did the CEO handle a complex reputational issue thoughtfully? Effectively navigate a high-stakes leadership change? Demonstrate resilience in adapting the strategy mid-year in response to economic shifts? The results may not be crystal clear on paper – but boards can assess success in a thoughtful way.

Kinross Gold Corporation emphasizes that assessing individual performance is not a formulaic process — board judgment plays a key role in determining performance outcomes.

• These expectations can also be more behavioural, such as strengthening the CEO’s engagement with the board, reshaping the top executive team, or making headway with culture change. People leadership attributes may also be included – how the CEO builds and leverages talent, and drives team effectiveness, as well as strategic leadership attributes that support business transformation and execution of strategy. While these areas are less measurable in effective and reliable ways, it’s possible at the start of the year to agree on what signs would indicate successful and sufficient progress. Identifying and documenting these indicators of success can help reduce the chance of debate at year-end.

BCE includes people leadership and strategic leadership attributes in individual performance — focusing on how the CEO builds talent, drives team effectiveness, and reinforces the business transformation and strategic execution.

Some boards feel significant discomfort with more qualitative performance criteria that are not tied to results. There is a false sense of safety in clear, quantifiable metrics that are highly correlated to shareholders’ views of performance, and that can be objectively measured using accepted practices. But a less quantifiable metric may have a more significant and/or lasting impact than a more quantifiable metric.

Those safe, straightforward, quantifiable metrics also limit the conversation and the lens on performance. For example, consider:

• How does the board set the tone, on an ongoing basis, that the results are important, but are not the only indicator the board looks at when understanding the CEO’s impact?
• Is the board factoring in cultural impact and leadership behaviour in its picture of CEO performance, especially at a time when scandals and bad behaviour are equal to or leading poor financial performance as reasons for CEO exits?
• How can the board help the CEO balance the behaviours that drive short-term performance with those that create long term business growth and success? While a CEO may have a long-term incentive portion to their compensation, short-term incentives might feel more controllable. And, contrary to the stereotypical portrayal of CEOs, they are not purely driven by financial gain; feedback, guidance and clear expectations matter in shaping what they do and how they do it.

Getting this right: a thoughtful combination of why, what, who, and how

Why: Get alignment on what matters

Confirm your objectives for CEO evaluation, including how the results will impact compensation. Consider the lens of the board, CEO, shareholders and other stakeholders. A strong process has impact for the CEO and business, and also creates trust, confidence and credibility by strengthening the link between results, rewards, and career trajectory.

What: Decide what should be evaluated

We think of two main areas of performance: what results are delivered, and how those results were achieved.

Results should include more than the financials to capture the full scope of the CEO’s contributions. Determine those things when confirming the CEO’s plans, goals and priorities for the year; that is the opportunity to ensure all are aligned on what success will look like, and how that will impact compensation.

It is also important to evaluate how the CEO works – how they lead, partner with the board, and influence the company culture – and give feedback in those areas. This is an important dimension of performance and should also be used as an input into decisions about the CEO’s development priorities.

Who: Consider who you need to hear from

We believe that all board members should provide input – and feel accountable to monitor and be ready to give evidence-based feedback. This is an important part of the board’s role.

And, because it is critical that the board have line of sight into how the CEO behaves inside the organization, and the culture they are creating (e.g. ethical, safety-oriented, harassment-free, encouraging innovation, etc.), there should be an opportunity to gather insight from the CEO’s direct reports. Strong leaders want feedback; a good CEO will invite and support a process that includes direct reports.

Because of the power differentials at play and confidentiality considerations, our advice is to use a third-party to gather and distill feedback, to be combined with the scorecard of more measurable results.

How: What is important in the process

We will spare you the detail of all the steps and highlight a couple of key things:

First is the power of upfront alignment; with consensus on what success looks like and how it will be measured; the more straightforward the process is, the more trusted the outcome will be.

Second is the importance of ongoing conversations; there should be no surprises. Candid, ongoing discussion with the CEO in camera, as well as in 1:1s with the Chair, should lay the groundwork through the year.

Finally, stay flexible. If circumstances change, acknowledge it in real time – moving the goal posts at year-end is too late and raises red flags for shareholders and other stakeholders. The sooner changing circumstances are identified and discussed, the more everyone will have a chance to think through the complex decisions involved and be more open to a change.

Outcomes: What to do with the results

Most companies use CEO performance evaluations to inform base salary increases. Based on recent disclosure, almost half of the TSX60 companies use individual performance as a component in their short-term incentive plans. Some companies also use individual performance as a factor that influences the quantum of long-term incentive awards that are granted. But the results from the CEO’s individual performance evaluation should also be used for developmental purposes – whether it’s helping them to close a gap or stretch into the next level of leadership.

Closing thoughts

There’s really no way around it; assessing CEO performance – and tying it to compensation – is challenging work that must be approached diligently and holistically. Corporate results are not the full story of a CEO’s performance, and evaluation isn’t just about bonuses; CEO performance evaluation requires the board’s attention, careful judgment and Board-CEO relationship acumen. Done well, it becomes a powerful lever for clarity, alignment and growth – for the CEO and for the company.

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