Article: Time to measure senior leaders' performance beyond just financial indicators

Leadership

Time to measure senior leaders' performance beyond just financial indicators

Productivity and performance isn't just for the workforce. Senior leadership's performance needs to be evaluated and managed too – but how can this be done beyond financial indicators? Experts from the Center for Creative Leadership offer some pointers.
Time to measure senior leaders' performance beyond just financial indicators

It's clear enough that the executive leadership of a company has a major role to play in driving performance and productivity, whether on a business level or an individual level. So what about the leaders' own performance and productivity? These are typically evaluated in terms of a company's financial performance, including stock price if the company is listed, and also compensated accordingly.

But the last few years have shown that financial performance doesn't necessarily correlate with other aspects of leadership. Is it possible to go a step further, and take a more comprehensive view of leadership performance?

People Matters asked Sunil Puri, Asia Head of Research and Product Development (above left), and Elisa Mallis, Managing Director and Vice President, APAC (above right), from the Center for Creative Leadership (CCL), to weigh in on what constitutes effective leadership performance in today's environment. Here's what they shared.

Productivity for top leadership isn't often touched upon. What do you think are the indicators of a top leader's productivity and performance?

Sunil: Looking at senior leader performance beyond the financial metrics such as topline and bottom line performance, valuation, stock price, is tricky to say the least. While from a shareholder perspective it may be adequate to look at financial metrics, it is certainly not appropriate in the current context when stakeholder capitalism pips shareholder capitalism, and people and planet is almost as important, if not more, than profits.

CCL research shows that effective leadership happens when there is a clear strategic direction, alignment of different verticals and functions, and commitment by employees towards the shared purpose. To make it happen is senior leaders' responsibility and the leadership team is squarely accountable for making direction, alignment, commitment happen.

Also, CCL’s Purposeful Leadership research highlights that senior leaders must live the ‘purpose’ of the organisation to engage key stakeholders, and to drive long term profits. Leaders must therefore be measured on how effectively they walk the talk around purpose.

Progressive organisations are also beginning to measure their leader performance in terms of metrics that predict future performance, such as innovation activity, rather than metrics that show historical performance such as margins and top line.

Elisa: Financial inclusion, social inclusion, digital inclusion and diversity at the top are a few purpose led drivers that top leaders are starting to be held accountable for with specific metrics, in addition to metrics related to the environmental impact an carbon footprint of their business.

Metrics that put people first are also featuring more prominently as measures of top leaders' performance. Especially over the last two years, we saw how higher levels of employee well-being, trust and engagement made the difference for teams and businesses that were able to better weather the ongoing pandemic.

How can such qualitative or intangible aspects of senior leadership's performance be evaluated?

Sunil: Qualitative aspects can often be measured by evaluating workforce attitudes towards senior leadership and key strategies driven from the top. How strongly are leaders able to shape the culture to drive innovation, learnability, agility, for instance needs to be evaluated. Also, senior leaders must take accountability for talent identification and development, driving strong value systems among talent, and shaping positive attitudes at the workplace.

CCL’s research on Purposeful Leadership highlights senior leaders are accountable to a broader stakeholder group, much beyond shareholders, and therefore organisational impact on societies and communities; employee wellness, diversity, inclusiveness; and environment, must form key metrics that senior leader performance much hinge on.

Elisa: There are several very effective culture and top team assessments that can be taken over a period of time to help identify blind spots that the leader or the leadership team may have when it comes to the culture needed for future success. Bringing in perspectives from team members at all levels can also be eye opening for the management team to uncover areas they may need to tackle to boost performance and support a positive organisational culture.

Conversely, how can the downsides be evaluated: e.g. if a senior leader contributes to financial performance but has otherwise had a negative impact on the company culture or its non-financial KPIs?

Sunil: According to CCL research, in order to drive ‘shared value’ senior leaders must balance altruistic or CSR initiatives the organisation drives for uplifting societies and communities, with financial performance. It is a fine balance that may need leaders to act courageously, often sacrificing short term growth for longer term impact.

Progressive organisations often follow a ‘zero-tolerance’ attitude if leaders do not walk the talk on living the culture of the organisation, irrespective of financial contribution. The underlying ‘mantra’ around performance being that ‘what’ the leader accomplishes is as important as ‘how’ the leader achieved targets.

Elisa:

 

Usually, a negative impact on company culture will eventually translate into poor financial performance and other negative business outcomes in the long term.

 

Therefore, it’s important for not only HR but also other senior leaders and the Board to play a key role in holding such leaders accountable for non-financial KPIs.

What then are some effective ways of improving the C-suite's productivity and performance?

Sunil: We believe that ‘development never stops’ and leaders must continue to grow and be a better version of themselves, irrespective of their level. According to CCL’s 70-20-10 philosophy of leadership development, while leaders must attend development programmes, it is more important for them to leverage mentoring and coaching, and learn through experiences. Boards must play a proactive role in curating a development plan for their CEO; the plan must include partnering with Board leaders on critical organisational initiatives.

Elisa: We also believe that learning through heat experiences, which are stretch assignments creating a “trial by fire”, are an important way for leaders to be prepared for larger and more challenging roles. These can include assignments or projects within the organisation, managing a specific crisis, leading particular external community or industry initiatives, or other high profile external roles representing the organisation. Getting the temperature right and providing the right support along the way is important; these heat experiences must be carefully curated to ensure they do not result in burnout.

Senior leadership's performance incentives are traditionally heavily tied to historical financial performance. What's a better framework for compensating good leadership performance?

Sunil: Good leader performance measurement incentive plans must not only be based on financial performance, and how the stock market rewards the company, but also on metrics that predict future success of the organisation.

While non-financial performance indicators such as market share ratios, efficiency and productivity metrics remain popular, most progressive organisations also link executive compensation with more ‘fuzzy’ yet critical non-financial metrics such as product or service quality, innovation measures, and customer and employee satisfaction scores.

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Topics: Leadership, Performance Management, #PerformanceBeyondProductivity

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