How are members of management typically evaluated?

Corporate Governance

Austria Small Flag Austria

In order to ensure that the variable remuneration components comply with the principles summarized above, evaluation policies and measurable criteria must be fixed in advance and serve as a basis for an ex ante risk and performance assessment. In addition, these policies serve as a basis for an ex post assessment of the performance and, if need be, an ex post adjustment of the deferred variable remuneration resp. a clawback of remuneration already paid out based on obviously false data.

Brazil Small Flag Brazil

Brazilian law does not provide for particular criteria for the evaluation of corporate managers, which in fact vary from company to company. Still, the Brazilian Corporate Governance Code, which serves as a corporate governance guide for corporations, establishes that the evaluation of the board and board members contributes to the effectiveness of the body, is part of its accountability duties, and allows a greater level of governance in the organization. The board is responsible for disclosing information on the evaluation process and a summary of the main points of improvement identified for the body and the corrective actions implemented.

According to the Code, the valuation of management may be carried out by board members, who may be aided by professional executives, other stakeholders and/or external advisors. Members of management must also undergo a self-evaluation (as a governing body and as individual members), as well as evaluate all other bodies that report to the board of directors. At more advanced stages of corporate governance maturity, the board may also be evaluated by management.

Still under the Brazilian Corporate Governance Code, executive management shall be evaluated in order to promote a superior and consistent performance for the organization. The CEO is directly responsible for the evaluation of the executive management members, and should implement a process for their systematic and annual performance assessment. The CEO must ensure that all managers, or at least the organization’s senior management, undergo periodic evaluation. The evaluation process may be supported by the human resources department, if any. The results of an officer’s evaluation must always be shared with the board of directors.

France Small Flag France

The AFEP-MEDEF and Middlenext Codes set out recommended criteria applicable to management compensation packages, including fixed and variable components, stock grants, deferred compensation (such as stock options and pension contributions), “exceptional” payments and welcome bonuses.

Germany Small Flag Germany

Evaluation will typically include measuring the performance of the Management Board members against the indicators set by the performance-related compensation components.

The GCGC recommends that the Supervisory Board shall assess, at regular intervals, how effective the Supervisory Board as a whole and its committees fulfil their tasks. This self-assessment should be supported by external resources after not more than three years.

Greece Small Flag Greece

The Law does not provide an evaluation process for members of the board or management. Thus this is at the discretion of the company. Notwithstanding the above, the General Meeting of shareholders monitors the actions of the managers and the members of the board annually, during the meeting and in the context of the approval of the financial statements of the company.

Hong Kong Small Flag Hong Kong

This varies from one company to another based on the internal policies of a particular company. Senior management and executives often report to the board so their performance will usually be evaluated by the board on a periodic basis.

Japan Small Flag Japan

Members of management are evaluated by their performance, and if it is not satisfactory, they will not be nominated by the board of directors (as directors in the cases of a company with statutory auditors and a company with an audit and supervisory committee), or re-elected by the board of directors (as executive officers in the case of a company with three committees).

However, there has been a criticism that there is no specific criteria for the evaluation of management or that evaluation does not function well. As such, the CGC encourages the board to appropriately evaluate company performance and reflect the evaluation in its assessment of senior management.

Portugal Small Flag Portugal

Annual appraisal of the governing bodies is mandatory in the annual shareholders meeting.

The IPCG Code also recommends an annual evaluation addressing the functioning of the board and of its committees and the individual contribution of each member, and the company’s performance vis a vis its strategic plan, risk profile and budget (by the administration and supervisory bodies and specialised evaluation committees).

South Korea Small Flag South Korea

The KCC does not provide for specific regulations regarding evaluation of members of management of a Company, and management evaluations are generally conducted based on internal regulations. Under the KCC, an officer who is director may be dismissed by a special resolution at the GMS—this is not applicable to a non-director officer.

Switzerland Small Flag Switzerland

Members of management are evaluated on the basis of achievement of the targets determined under the applicable short-term and long-term incentive plans. These may be targets regarding the financial and/or share price performance of the company (absolute or relative to the market or industry) or personal performance criteria regarding the relevant member, or a combination of the two. A distinction is often made between different functions or levels of management and depending on whether a member holds a function at group level or for certain regions or business units only.

United States Small Flag United States

Management is evaluated in a number of ways, ranging from quantifiable, data-driven metrics to more qualitative metrics. The board usually evaluates the CEO and the CEO typically evaluates the other executive officers. Generally, a company will take into account some combination of bottom-line impact, operational results and leadership value. Bottom-line effect is the most common way management is evaluated. Management will be given a target (usually a financial target) for corporate performance and will be measured based on progress toward achievement of that target. Management may also be evaluated based on operational results, such as “increase in customer engagement” or “expansion into new markets,” which are not necessarily directly correlated with a clear financial or performance target. In addition, management may be evaluated based on leadership value. Companies may reward members of management for qualitative metrics, such as building new business, developing subordinate employees or generating long-term growth.

United Kingdom Small Flag United Kingdom

Structures for the evaluation of management will depend on the level of the manager and the size and complexity of the company. For employee managers (as opposed to executive directors), evaluations may form part of customary HR processes. For owner-managed private companies, processes may be more ad-hoc. For listed companies, processes tend to be more formal and rigorous.

Premium listed companies should formally and rigorously evaluate the performance of the board, its committees, the chair and the individual directors. For FTSE 350 companies this should happen at least every three years. The chair should also consider obtaining the assistance of third party experts to assist in conducting such evaluations. The chair should act on the results of the evaluations by recognising strengths and addressing weaknesses. Evaluations should be summarised in the annual report.

In addition, led by the senior independent director, the non-executive directors should meet without the Chairperson present at least annually to appraise the Chairperson’s performance, and on other occasions as necessary.

Canada Small Flag Canada

Management is commonly evaluated using performance metrics based on the short-term and long-term business objectives of the corporation as well as personal development objectives, although such practices and the formality thereof vary widely among corporations.

Italy Small Flag Italy

Managers evaluation shall be discretionally defined and carried out by the board of directors, internal evaluation functions and senior management (e.g. CEO, COO, HR).

It is worth noting that listed companies, insurance companies and banks’ board of directors shall conduct auto-evaluations on a periodic basis, respectively, under the CG Code and Circular no. 285/2013 issued by the Bank of Italy.

Turkey Small Flag Turkey

Job descriptions, job distribution, performance and rewarding criteria must be announced to the employees in companies whose shares are traded on the stock exchange. Attention is paid to the productivity in determining the wage and the other benefits to be granted to the employees. The company can create plans in order to make the employees have shares (CGP, article 3.3.6).

In addition, the audit committee determines the method and criteria in the evaluation of the notices regarding the employees within the scope of the confidentiality principle (CGP, article 4.5.9). Similarly, the nomination committee has the duty to form a transparent system and to determine policies and strategies in choosing the appropriate candidates for the position of executive members (CGP, article 4.5.11).

Luxembourg Small Flag Luxembourg

The evaluation of the members of the daily management is left to the board, who may, subject to the articles of association and the mandatory provisions of the Companies Act, terminate the daily management delegation with or without cause. There is consequently an implicit evaluation mechanism foreseen.

For qualifying listed companies, the LSE Principles further indicate that the board shall set up a body responsible for the effective executive management of its business. It shall clearly define the assignments and duties of the executive management and shall delegate to it the powers required for the proper discharge thereof. Furthermore, the board shall establish critical procedures for assessing and reviewing the operation and performance of the executive management as a whole and of each of its members.

Ukraine Small Flag Ukraine

Members of the executive board in LLCs and JSCs are primarily evaluated based on the company`s profitability. Some big companies use more sophisticated KPIs like customer retention, project completion rates, marketing efforts etc. in addition to financial results.

All public JSCs must approve and annually review the regulation on compensation of executive board members with financial and non-financial KPIs for managers.

Australia Small Flag Australia

Management is held accountable by the board of directors. The board may delegate this responsibility to the chief executive or human resources executives.

Egypt Small Flag Egypt

Egyptian Law does not define specific criteria for assessing the management of companies. Nevertheless, in practice, the managers/directors are bound by contractual KPIs.

Updated: September 18, 2019