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Do managers perform better under EVA bonus schemes?

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  • Stephen Riceman
  • Steven Cahan
  • Mohan Lal

Abstract

Economic Value Added (EVA) is a performance measure that is being used by an increasing number of companies, but academic research on EVA is limited. In addition, all prior empirical academic studies on EVA have used the firm as the unit of analysis. In this study, we examine the effect of EVA on the performance of individual managers. Specifically, we examine whether managers on EVA-based bonus plans outperform managers on traditional accounting-based bonus plans. We are able to test this because we have access to an EVA-focused company that has managers on both EVA and traditional bonus plans. Our results suggest that managers on EVA bonus plans who understand the EVA concept perform better than managers on traditional bonus plans. However, we find some evidence that the increase in performance results from increased consistency or congruence in the manager's evaluation-reward process rather than from superiority of EVA as a performance measure. Also, we find that the effect of EVA bonuses and EVA understanding differs depending on the area of the firm in which the manager is employed. This suggests that EVA may not be a universally appropriate base for reward systems. *Mohan Lal passed away 24 July 2002. This paper is dedicated to him.

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  • Stephen Riceman & Steven Cahan & Mohan Lal, 2002. "Do managers perform better under EVA bonus schemes?," European Accounting Review, Taylor & Francis Journals, vol. 11(3), pages 537-572.
    • Handle: RePEc:taf:euract:v:11:y:2002:i:3:p:537-572
    DOI: 10.1080/0963818022000000984
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    1. J. G. Wissema & H. W. van der Pol & H. M. Messer, 1980. "Strategic management archetypes," Strategic Management Journal, Wiley Blackwell, vol. 1(1), pages 37-47, January.
    2. Anisya S. Thomas & Robert J. Litschert & Kannan Ramaswamy, 1991. "The performance impact of strategy ‐ manager coalignment: An empirical examination," Strategic Management Journal, Wiley Blackwell, vol. 12(7), pages 509-522, October.
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    4. Jerold L. Zimmerman, 1997. "Eva And Divisional Performance Measurement: Capturing Synergies And Other Issues," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(2), pages 98-109, June.
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    Cited by:

    1. Gleadle, Pauline & Cornelius, Nelarine, 2008. "A case study of financialization and EVA®," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 19(8), pages 1219-1238.
    2. repec:dau:papers:123456789/3143 is not listed on IDEAS
    3. Giulio Corazza, 2019. "Value Based Management Systems and Firm Performance: An Analysis of the Literature," MIC 2019: Managing Geostrategic Issues; Proceedings of the Joint International Conference, Opatija, Croatia, 29 May–1 June 2019,, University of Primorska Press.
    4. François Larmande & Jean-Pierre Ponssard, 2004. "EVA and the Controllability-congruence Trade-off: An Empirical Investigation," CESifo Working Paper Series 1257, CESifo.
    5. Nicolas Mottis & Jean-Pierre Ponssard, 2009. "Création de valeur, 10 ans après..," Revue française de gestion, Lavoisier, vol. 0(8), pages 209-226.
    6. Nicolas Berland & Jean-Pierre Ponssard & Olivier Saulpic, 2006. "Recurrent Attempts to Renovate Management ControlRevisited through a Simons' Perspective," Working Papers hal-00243033, HAL.
    7. A. Manor Selvi & A. Vijayakumar, 2007. "Performance of Indian Automobile Industry: Economic Value Added (EVA) Approach," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 32(4), pages 451-468, November.
    8. Mottis, Nicolas & Ponssard, Jean-Pierre, 2009. "Création de valeur, 10 ans après…," ESSEC Working Papers DR 09013, ESSEC Research Center, ESSEC Business School.
    9. Anike Sult & Janice Wobst & Rainer Lueg, 2024. "The role of training in implementing corporate sustainability: A systematic literature review," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 1-30, January.
    10. Jiří Kučera & Marek Vochozka & Zuzana Rowland, 2021. "The Ideal Debt Ratio of an Agricultural Enterprise," Sustainability, MDPI, vol. 13(9), pages 1-17, April.
    11. François Larmande & Jean-Pierre Ponssard, 2007. "The lack of controllability of EVA explains its decline a field study," Working Papers hal-00243065, HAL.
    12. A. Vijayakumar, 2008. "Linkage between Market Value Added (MVA) and other Financial Variables: An Analysis in Indian Automobile Industry," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 33(4), pages 504-521, November.
    13. Lindblom, Ted & Sjögren, Stefan, 2009. "Increasing goal congruence in project evaluation by introducing a strict market depreciation schedule," International Journal of Production Economics, Elsevier, vol. 121(2), pages 519-532, October.

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