The Art and Science of Measuring CEO Performance

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The long-term performance of a company's stock may be the ultimate test of a CEO's talents. But that's not the only measurement used by boards of directors to gauge how well the boss is doing.

Experts at Wharton and elsewhere say that companies use many different metrics -- all of which can be fine-tuned to fit a company's circumstances. They also say that, even though hard numbers play a critical role in determining short- and long-term remuneration, compensating a CEO can sometimes be as much an art as a science.

Indeed, any number of factors can affect the way CEOs are judged by their boards, including a particular management style (think Robert Nardelli and Home Depot (HD Quote); an especially challenging industry (automobiles and labor unions); soft metrics (such as customer satisfaction or R&D); the influence of increasingly well-informed shareholders, and an organization's age (startup vs. mature company). ...