Why is it important to measure CEO performance utilizing non-financial metrics?
After all, the CEO is responsible for the entire franchise, so quantitative metrics like earnings per share (EPS) or return on invested capital (ROIC) are good measures of their accomplishments. Furthermore, these measures are numerical and objective, not easily open to manipulation, and have major impact on shareholder value. Unfortunately, financial metrics tell only part of the story and are often lagging indicators of CEO performance. In these days of heightened scrutiny and accountability, boards are increasingly concerned with both what was accomplished and how these results are accomplished. Indeed, in case after case of corporate malfeasance, a CEOs need to drive financial metrics caused some individuals to cut corners, tripping down a slippery slope of deceit to conceal the original missteps. It is typically only after these mistakes have snowballed that they come to light, all too often destroying shareholder equity and ruining careers in the process. Savvy boards are demandi
