Measuring Performance: Board and Executive Management

Sections in this Topic

Overview
Board Performance
Executive Management Performance
Responsibility for Measuring Performance
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Last update: September 6, 2013

Overview

The competitive nature of the banking industry compels banks to optimize bank performance in the interest of its shareholders and a community that seeks competitive products and services. Measuring performance is one way a bank can ensure that its board and executive management team achieve bank performance targets.

Board Performance

The board should establish the method and frequency of performance measurement, given the bank’s mission and strategic goals. There are various methods for measuring board member performance, including:

Completing evaluation forms, surveys, and questionnaires.
Collecting comments from colleagues.
Tracking metrics on bank goals.
Tracking the completion and timeliness of regulatory directives.

When collecting comments from colleagues, a complete 360-degree review may help provide a full perspective. For example, each director and executive officer should provide comments in an appropriate form, survey, or questionnaire regarding each director as well as the board as a whole.

When deciding the group of metrics to track concerning bank goals, the board should consider growth in overall asset size, growth in loans or particular types of loan products, and growth in deposits or other funding sources, such as capital. If the bank strategy plans for branch growth, the number of branches over a period of time may be important. The evaluation should also include the achievement of favorable results from external audits and regulatory examinations.

When deciding the types of metrics to track concerning individual directors, the board should include the following:

Attending board meetings.
Participating on committees, including committee leadership and level of committee involvement.
Asserting opposition/alternative views at board meetings.
Attending director training programs.
Maintaining a favorable relationship with regulators.
Creating and achieving business development goals.
Avoiding conflicts of interest.

Executive Management Performance

The methods for measuring executive management performance are similar to those for measuring board member performance. The individual metrics to measure, however, should include the following:

Achieving financial and operational target results.
Responding promptly to the board of directors.
Providing clear and thorough reports to the board.
Attending training programs.
Maintaining a favorable relationship with regulators.
Creating and achieving business development goals.
Avoiding conflicts of interest.

Responsibility for Measuring Performance

The board is responsible for oversight of the bank, as well as the development and approval of policies and strategies. This includes maintaining an effective executive management team. The board must hold executive management accountable for execution.

Board goals should include understanding, measuring, and improving the performance of the executive management team. When bank performance needs to improve, the board should be instrumental in compelling executive management to execute more effectively. Occasionally, in situations in which executive management fails to improve or does not execute according to the board’s expectations, the board should be capable of initiating the replacement of executive management, as necessary. Successful banks rely on boards that understand how to motivate or terminate executive management, as appropriate.

Implementing an effective performance measurement process can be difficult, but it can be even more difficult to deal with a management team that is not meeting the bank’s expectations or not operating under clear guidance from the board.