Study: CEOs rate poorly in talent development

CEOs are receiving poor grades for their mentoring skills and board engagement in their quest for financial performance, according to a national study conducted by Stanford University and a New York-based talent-strategies firm.

The 2013 Survey on CEO Performance Evaluation – which was conducted in February and March by the Center for Leadership Development and Research at Stanford Graduate School of Business, Stanford University’s Rock Center for Corporate Governance and The Miles Group – determined executives typically prize financial performance above all else after polling more than 160 CEOs and directors of North American public and private companies.

Board directors who participated in the survey identified “board engagement” and “mentoring skills” as the No. 1 weakness of their CEOs but generally placed little weight on nonfinancial performance measures. According to the survey, only a 5 percent weighting was given to succession planning and the talent development of their CEOs, 4 percent to customer satisfaction and 2.5 percent to employee satisfaction and turnover.

A 41 percent weighting was devoted to accounting, operating and stock performance – more than any other category. CEOs were praised most for their “decision-making skills.”

Survey respondents said 71 percent of their boards established metrics used to evaluate executives. Chairmen of the boards set performance criteria at 22 percent of organizations that participated.

Guaranty Federal Bancshares Inc. (Nasdaq: GFED) President and CEO Shaun Burke, who has led the 100-year-old Springfield-based Guaranty Bank for nine years, said financial performance is a top priority for a person in his position.

A nine-member board of directors, which includes Burke, manages bank operations.  

“Our compensation committee is a chartered committee at the board level. It primarily provides the reviews of my performance. It will use outside consultants, usually on a two- to three-year rotating basis, to review the financial and compensation package, but that is secondary to the performance results that are set for me at the bank,” Burke said. “My performance is based on a set of financial metrics for the bank’s operations.”

Guaranty Federal board member Kurt Hellweg said the board considers Burke the bank’s team leader and its public face.

“As such, we look at how he connects, interacts and leads – in the bank and in the community,” said Hellweg, the CEO of American Dehydrated Foods Inc., via email. “The bonus portion of Shaun’s total compensation is tied to both the bank’s budget and how the bank compares to peer banks in several key ratios.”

The bank’s 2013 financial metrics approved by the board’s compensation committee include equity ratio, net interest margin and pretax net income, according to the executive incentive plan in SEC Form 8-K filed Feb. 8. For instance, incentives up to $120,000 in restricted stock grants could kick in for Burke, if the bank’s net income exceeds 75 percent of budget this year, according to the approved plan.

Last year, Burke’s cash compensation was roughly $320,000, plus stock options, according to Securities and Exchange Commission filings. In 2011, he earned $313,236, ranking him No. 6 on Springfield Business Journal’s list of Highest Paid CEOs among area publicly traded companies.

According to the survey, 75 percent of organizations evaluate their CEOs once a year. Only 21 percent of businesses utilize an outside consultant to assist in the review process, but 97 percent of firms were “moderately satisfied” or “very satisfied” with that assistance.

Burke said consultants review both objective and subjective data before issuing reports on Guaranty’s CEO. Objective measures examined include financial performance and growth of the company, while subjective measures include a review of personnel development, team leadership and customer service.

Guaranty Bank posted record earnings in the first quarter of $953,000, a 14 percent increase compared to the same quarter in 2012, and shares were trading at $10.15 on June 13.

One of the areas identified in the study as being deficient among CEOs is talent development. Burke said it isn’t a top priority of his to train senior leadership at Guaranty.

“We have ongoing training that all of us, including myself, participate in. It is more regulatory-based, but we have ongoing personnel development opportunities through our human resources department,” he said. “Most of our management team at the executive level are 20- to 30-year veterans in the industry, so there is not a lot of training that they have to do.”

CoxHealth President and CEO Steve Edwards said the health system that posted more than $1 billion in 2012 revenues also utilizes an outside consultancy, which annually evaluates board member responses to questions about Edwards’ performance. Edwards, who has served as CoxHealth CEO for 18 months, has been through the process once.

To guide evaluations, he said the hospital is continually monitoring various metrics the board members have established through four pillars, or top performance priorities.

CoxHealth pillars are quality and safety; service, which connects to customer satisfaction; people, aka employee satisfaction; and business, which encompasses the nonprofit’s financials.

Each pillar, Edwards said, comprises roughly five metrics that serve as areas of focus within the pillars. For example, one metric for the quality and safety pillar is adjusted mortality rate. A goal for Edwards and his top managers is to keep the rate among the top 10 percent of health systems in the country. Metrics are updated monthly or quarterly, Edwards said, so board members know how well the hospital is performing in the areas it has identified as most important.

“Essentially, you know how you are doing throughout the year. It is a very objective approach,” Edwards said.

According to the survey, 83 percent of directors believe the CEO evaluation process is effective. The survey identified a slight disconnect between CEOs and their boards, however, as only 63 percent of CEOs see their evaluation process as effective.

Surprisingly, 10 percent of respondents reported their company’s chief executive had never been formally evaluated.

Like CoxHealth, Guaranty Bank holds monthly board meetings, and Burke said there is a significant amount of time spent preparing for those meetings.

“Our board members will receive board packets a week in advance of our meetings that will vary in length from 200 to 400 pages,” Burke said, noting board members also often sit on multiple committees, such as a loan committee or an asset liabilities committee.

Edwards said the health system’s 30-member board of directors comprises nine committees, such as building grounds or public safety. Part of Edwards’ job is to connect staff members with committees to make presentations and answer questions as plans or new initiatives are forwarded.

While talent development isn’t considered a top priority for CEOs among most surveyed business operators, that isn’t so with Edwards.

“It is probably my most important job. We understand that with the aging population much of our workforce may be leaving. A lot of our senior leaders are baby boomers, and they are getting ready to retire,” Edwards said. “We have probably more than 500 managers in the organization, and so I know one of my chief jobs is making sure we have the processes in place to help train and develop people.”