Question

What are the main accounting measures used to measure CEO performance in public US firms? Which of these measures do you think is a useful measure in the case of oil companies? Why?

Answer 1

A) Defining an effective set of dimensions to be evaluated represents a major challenge. Based on the distinction made above between a CEO’s impact on corporate performance and his or her actions and effectiveness as a leader, three generic sets of measurements of CEO performance: bottom-line impact, operational impact, and leadership effectiveness.

1. Bottom-line impact - Most CEO evaluation and “pay-for-performance” plans are based on the assumption that the top executive has a direct and significant impact on corporate performance, and therefore hold CEOs accountable for the company’s overall financial health.
2. Operational impact.- Operational impact refers to the CEO’s influence on the company’s effectiveness in operational areas, such as customer satisfaction, new product introduction, or productivity enhancement, and how well the firm implements its strategy.
3. Leadership effectiveness - Leadership effectiveness addresses how well the CEO carries out his or her responsibilities, both in terms of executing specific role responsibilities—identifying a successor, meeting with key customers and investors, developing a long-term strategy—and the quality of those actions—communicating with external stakeholders, energizing the organization, and gaining the confidence of investors

B) All these measures are equally useful in measuring performance of CEO in oil companies, as an organisation structure of oil companies is similar to other companies. Share holders are interested in bottom line in all organisations, including oil. Operational impact is also an important measure even in oil companies, as oil companies also face a tough competition from other oil companies and other sources of energy emerging in modern world.