The Role of Economic Value Added in Pay-For-Performance Analysis

In 2019, proxy adviser Institutional Shareholder Services Inc. (ISS) announced it will formally incorporate Economic Value Added (EVA) into its pay-for-performance assessments starting in 2020. This development puts EVA back on the radar as a possible performance measure for short and/or long-term incentive plans.

Should you consider using EVA as an incentive plan metric? Keep reading below to find out the strengths and weaknesses of EVA as an incentive plan metric.

In our performance measurement spotlight article, we’ll cover what you need to know about EVA, including:

What is EVA?

Does EVA align with Total Shareholder Return (TSR)?

How will ISS use EVA?

Is EVA an appropriate incentive plan metric?

Few companies currently use EVA to measure performance (3% in short-term incentive plans and 1% in long-term incentive plans), according to a recent Mercer survey of S&P 500 companies.

Should this change now that ISS uses EVA to supplement its TSR-based pay-for-performance evaluations? The simple answer is no. Read the article to find out why and how you should determine what the right metrics are.

Speak to a Mercer consultant today

EVA is only one incentive metric to consider for your executive compensation. Still have questions? Contact a Mercer executive compensation consultant today.

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