What Makes A Good CEO?

September 14, 2016 – The average U.S. CEO approval rating stands at 67 percent, according to a new statistical analysis of CEO approval ratings by Glassdoor, which measured CEO quality according to employees. The Glassdoor Economic Research reveals a number of factors that ultimately drive employee perception of CEOs, some of them quite surprising.

The study, ‘What Makes a Great CEO?‘ looks at large, publicly traded companies in the U.S. and finds that highly paid CEOs have significantly lower CEO approval ratings. Founder chief executives have higher approval ratings than outsider and internally promoted CEOs. And, interestingly, low employee ratings around work-life balance tend to correlate to higher CEO approval ratings.

While employee sentiment around culture, senior leadership, career advancement, and compensation & benefits have some statistical significance around higher CEO approval, other characteristics like gender, age, education and job tenure do not.

Employee Opinion Matters

“Employee opinion of the CEO can be very telling about a company, and Glassdoor data confirms there is a direct link between how employees view their CEO and how they feel about their company culture. CEOs and leaders who cultivate a strong company culture, offering career advancement opportunities for employees and management training for strong senior leaders, will typically gain more approval from their employees,” said Dr. Andrew Chamberlain, chief economist of Glassdoor. “And there’s no doubt about it – employees who are more satisfied are going to be more productive, impacting the bottom line.”

When searching for that next great CEO or C-suite leader, executive recruiters say they are turning away from looking at basic skill sets in favor of more distinctive holistic traits. According to a new poll by Mullin International, ‘Great Leaders Transcent Themselves,’ 88 percent of recruiters say “honesty / integrity” is the key trait that underpins great leadership.

Rick Gray, CEO of TalentRISE, concurs. “There are five essential leadership traits that I look for when identifying best-in-class C-suite talent: insatiable drive, resilience, humility, being a good listener, and effectively communicating with everyone up and down the organizational chain of command.”

CEO Approval By Industry

The most highly rated CEOs on average are found in the real estate (76.1 percent), construction (72.8 percent), information technology (72.6 percent), finance (72.4 percent) and insurance (71.8 percent) industries. By contrast, the lowest average CEO approval ratings are found in the retail (61.4 percent), manufacturing (64.1 percent), transportation (64.3 percent), mining (64.4 percent) and media (64.5 percent) industries.

High CEO Compensation Negatively Impacts CEO Approval

Past Glassdoor research on CEO-to-worker pay ratios has shown, on average, CEOs earn 204 times the median pay of their workers. New rules going into effect in 2017 requiring public companies to disclose the ratio of CEO compensation to median worker pay could have more of an effect than just greater transparency.

This new study found that all else equal, high CEO total compensation statistically predicts lower CEO approval ratings. However, the study found that having better company culture partly alleviates that effect, suggesting a strong company culture can lessen the negative effect of high CEO pay on approval ratings.

Lower Satisfaction with Work-Life Balance Means Higher CEO Approval

When looking at a variety of workplace sentiment factors that contribute to higher CEO approval ratings, the study found one factor in particular stood out with a negative correlation. Companies with lower work-life balance ratings predict higher CEO approval. Glassdoor data reveals a one star (out of five) decrease in work-life balance rating is linked to a 2.9 percent increase in CEO approval rating. Although Glassdoor research has found work-life balance is linked to higher overall employee satisfaction, this new analysis reveals that employees may be willing to sacrifice work-life balance for purpose-driven work and a visionary, inspiring leader. Highly rated CEOs seem to be much more common in companies that have lower satisfaction with work-life balance, such as fast-growing, high-achieving high potential workplaces.

Culture Matters

One factor clearly affecting CEO approval ratings is the culture of the companies they lead. In the eyes of many employees, CEOs are viewed as ultimately responsible for defining and maintaining the culture and values of an organization. By setting company policies and through their own behavior in the workplace, CEOs help define and cultivate an ecosystem of overall workplace satisfaction in their organizations.

In the Mullin International executive poll, a CEOs “personal drive” and “perspective” were also viewed as two of the leading characteristics that set great leaders apart. For transformational CEOs, “vision” was the defining trait.

“We typically conduct CEO searches for biotech start-ups and entrepreneurial companies, and therefore the qualities we are most often asked to seek are a combination of strategic thinking, passion and vision for the company’s mission, and a track record of inspirational leadership through challenging times,” said Robin Toft, president and CEO of Toft Group, a search firm that specializes in recruiting for organizations in the biotech, pharmaceutical, medical device, and diagnostics sectors. “Often times my clients’ ideal candidate would have one or more ‘big wins’ or successful exits under their belt, but in my experience many of the best CEO’s are doing this for the first time,” she added.

Companies with poor worker morale also have low CEO approval ratings, and the highest CEO approval ratings only occur in companies with above-average levels of employee satisfaction. In the eyes of many employees, CEOs are ultimately held accountable for workplace culture, making overall employee satisfaction emerge as a clear driver of CEO approval ratings.

Founders Have Higher Approval Ratings; Gender Has No Impact

Beyond pay, the Glassdoor study examined the impact of various CEO characteristics: age, education (whether CEO has an MBA), gender, tenure and how the CEO came to be the company’s leader (external hire, internal hire or as the founder).

Overwhelmingly, one of the biggest drivers of a high CEO approval rating is whether a CEO is also the founder of the company, predicting a statistically significant 3.2 percent increase in approval. CEO age, gender, education, and tenure on the job each had no statistical effect on CEO approval.

Company Performance Matters, Too

The study also found, unsurprisingly, when a company is performing well financially, its CEO enjoys a higher approval rating. In the study’s sample of large, publicly traded companies, a one-unit increase in company profitability predicts a statistically significant 10.2 percent increase in CEO approval ratings. This suggests that employees credit the CEO for good financial performance, though the inverse is also possible — when a company is doing well financially, employees may be more likely to approve of their CEO’s leadership.

“There is a strong link between employee sentiment and a company’s financial performance. This study further confirms what we have found in past Glassdoor research and other academic studies — more satisfied employees lead to better financial performance and stock returns. Now we see the specific tie between the bottom line and perception of the CEO,” said Mr. Chamberlain.

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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