Fixed-Term CEO Appointment Is Preferred

CEO appointment is a serious matter of which organizations need to exercise extreme care.

CEOs are normally not issued appointment letters. CEO appointment is usually on fixed term contracts.

An appointment letter may give the indication that the job is secure. Click HERE to check out how an appointment letter looks like.

The Need for Intelligent CEOs

The success of organizations depends very much on the skills and intelligence of Chief Executive Officers. All successful organizations have had great CEOs. In this respect, matters concerning CEO appointment is not something that an organization can take lightly.

An organization may have appointed a certain director to oversee HR matters especially on the employment of the Chief Executive Officer and other very senior executives. The HR Department provides help in this task.

CEOs' Remuneration

However, just because CEOs lead the management teams and are required to make all the hard decisions, it does not mean that they are paid salaries sky-high. CEO appointment like this is looked down by ethical-minded leaders.

If you - as being the HR Head - are given the mandate by the Board to search for a CEO for your organization and found one, you are not expected to recommend pay level that is embarrassingly high.

In CEO appointment contract, part of the salary is put at risk, particularly with regard to bonus. CEO may only get paid a percentage of the bonus if the organization's financial performance remains poor.

If the organization makes a loss, the CEO may forfeit his bonus. He is lucky if a portion of the bonus had been given up-front. Many had criticized decisions to pay bonus in full even if performance is wanting.

Terms and Conditions of CEO Appointment

Ensure that CEO's contract is made subject to stringent terms and conditions. A CEO is expected to produce results to the expectation of the Board.

In many cases, replacement of CEOs becomes necessary in desperate attempts to improve the poor financial performance of organizations. It is similar to professional football club managers who are subject to sacking if the clubs concerned do not make reasonable progress in league tables.

If you are the CEO, whether you are newly appointed or currently holding the position, you cannot hope to have security of employment. You are expected to go if you do not perform to expectation.

Employment of CEOs is on fixed duration of say, three to five years, with no option for renewal.

You cannot expect treatment as in the case of junior executives and other employees. The organization can terminate your service earlier than the end date subject to the term specified in the employment contract.

Much is demanded from CEOs. It is because of this that many do not perform well or cannot maintain good performance for the long term. There are exceptions, of course.

When the bottom-line starts on its downward spiral, you need to ask the question whether it is time to go. If not, you may face sacking and stare humiliation in the face. It is time to look for new pasture.

Termination of Service

The non-permanent nature of Chief Executive Officer's appointment allows either party to terminate the employment relationship at any time.

News of untrustworthy CEOs come up from time to time. If this happens, it is a signal for the Board of Directors that something is terribly wrong. They need to act fast and decisively. (Note: Members of the Board should be trust-worthy themselves.)

Responsible CEOs will tender their resignation the moment things make a turn for the worse or when the outcomes are less than expected. This is self-regulation through well-directed conscience.

CEO Succession

A new CEO is appointed when the situation dictates. But from available information, many organizations seem to lack the knowledge or expertise when appointing CEOs.

Professor Paul Strebel (November 2012) listed out the pitfalls in CEO succession, namely,

  1. The board is out-of-touch
  2. Too much ego interference
  3. The board is unaware of top internal talent
  4. The search process is superficial
  5. The CEO is not properly on-board
  6. The CEO cannot get on with the Chair and the Board

Read more at Pitfalls in CEO Succession

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