EVA (Economic Value Added or economic profit) has a long history of intermittent use in corporate performance measurement. It was widely used as a funding formula for corporate incentive plans in the first half of the 20th century, it enjoyed considerable popularity in the 1990s under the...

Institutional Shareholder Services (ISS) announced a new approach to evaluating pay for performance in late 2011. This paper explains the new approach, highlights four significant weaknesses of the new approach and explains how ISS could substantially improve its Pay for Performance Model, now...

This paper explores five interpretations of “pay for performance”, presents a practical way to measure pay for performance and shows the extent of pay for performance at S&P 1500 companies. The paper argues that pay for performance has three dimensions: the sensitivity of relative pay to...

This paper uses historical data on relative pay and relative performance to quantify three dimensions of pay for performance: pay leverage (a measure of incentive strength), pay alignment (a measure of correlation) and the pay premium at peer group average performance (a measure of performance...

The competitive target pay policy sets a target amount of total compensation within a specified range of the amount paid to executive peers. If such a policy were widely adopted by compensation committees, we would observe a negative cross-sectional association between the stock price...

This paper highlights the strengths and weaknesses of the U.S. Securities & Exchange Commission's (SEC's) proposed rules on disclosure of pay versus performance, makes several suggestions to improve the proposed rules, presents some surprising data showing that CEO pay is much more highly...

Arguments about turnover and retention risk play a key role in executive compensation decision making, but it’s rare to see those arguments supported with empirical data. A recent academic paper highlighted that the Execucomp database tracks executives across firms and analyzed the impact of...

The competitive target pay policy sets a target dollar number for total CEO compensation within a specified range of the amounts paid to a CEO’s peers chosen from similar sized firms in the same industry. If such a policy were widely adopted by compensation committees, we would observe a...

Most companies rely heavily on earnings to measure operating performance, but earnings growth has at least two important weaknesses as a proxy for investor wealth. Current earnings can come at the expense of future earnings through, for example, short‐sighted cutbacks in investment, including...