eva-align-managers-compensation-new-york-april



"Economic Value Added" Approach to Value Creation and Executive Compensation  

The Key is to Align Managers with Shareholder Interests

12 April 2024 in New York

Direct your organization’s energies to maximizing company value. Learn an innovative approach to measure period performance, formulate strategies, allocate capital, pay for performance, and align managers with shareholders, all with a cohesive single-minded focus on value creation. Evaluate whether value-based management is an appropriate tool for your company, and learn what it takes to implement it.
If you are working in one of the following roles, we invite you to join us for this interactive workshop that will boost your understanding of how to align managers with shareholders in both listed and private companies:
  • CEOs, General Managers, and Business Unit heads.
  • Senior finance,  Strategy and Corporate Planning executives.
  • HR, Compensation and Performance Evaluation executives.
  • Board Members and Shareholders.
  • Private Equity Fund managers.
  • Understand value creation and why it is critical to business success.
  • Learn why this objective isn't at odds with the interests of other stakeholders.
  • Identify the steps to institute value based management and incentive compensation at your company.
  • Understand shortcomings of Economic Value Added as a stand-alone financial tool.
  • Learn the best practices in customizing your performance measurement.
  • Make the right decision-making tools available to business managers to help them make better decisions.
  • Design and build an incentive system around value creation.
  • Reconcile competitive pay imperatives of the labor market with shareholders'' return requirements determined by the capital market.
A company’s success is ultimately measured by its ability to create value for its shareholders. Successful management makes the best, most effective decisions, and doing this requires understanding what creates value.  

“Economic Value Added” is a shareholder-aligned methodology that extracts optimal value from the balance sheet, ensuring shareholders receive the value-maximizing return from executive decisions. Its use as a performance measure alone while a step forward, can’t fully close the loop aligning executives with shareholders. By introducing the innovative Economic Value Added Bonus Plan, the executive’s decision-making horizon is stretched, holding him accountable for sustainable performance. 

Properly implemented, the Bonus Plan reconciles labor market imperatives with capital market return requirements and minimizes retention risk. Key executives receive competitive compensation and shareholders receive a competitive return. Executives receive a fixed share of any excess above the target, but share the risk if targets aren’t met. Companies adopting such incentives stay with them. Benefits include the added advantage of automatic annual reset of targets without tedious budget and compensation negotiations.

The workshop teaches comprehensive understanding of transformative strategies: How Shareholder-Aligned Value-Based Management can streamline corporate management and internal governance, create value for shareholders, and place your company on a path to sustainable growth.

1. Value Based Management (VBM)

Why focus on value creation is critical.How accounting fails to measure value and creates misalignment of interests.Measuring profitability that accounts for "total factor productivity". Control versus alignment-driven management.
Core elements of a VBM system:
  • Comprehensive performance measurement.
  • Decision-making support and analysis.
  • Value-aligned incentive compensation.

    • 2. Shareholder Value, Cash Flow and Economic Value Added

    Fundamental drivers of value.
    Centrality of opportunity cost of capital and the minimum required rate of return.
    Why return based measures may not measure value.
    Balance sheet usage and its costs and benefits.
    Equivalence of cash flows and Economic Value Added as shareholder value objectives.
    Why Economic Value Added is superior to cash flow as a value management tool.

    3. Customizing Performance Measurement

    Back to basics separation of operating, investment, and financing decisions.
    Correcting accounting that distorts managerial behavior.
    Accounting adjustments that reveal underlying economic performance.
    Performance measurement approaches to encourage long term investments.
    Cost of capital calculation overview.

    4. Strategy in the Context of Economic Value Added

    Why strategy is the means to an end, not an end in itself.
    How competitive advantage drives value, and its relationship to opportunity cost of capital.
    Mapping strategic advantages to the Economic Value Added equation.
    Reconciling your strategic and financial objectives.
    Integrating a Balanced Scorecard into the Value Equation.

    5. Decision-making Tools

    Tradeoffs between operating and asset efficiencies.
    Analysis of selected operating decisions:
    • Quantifying working capital trade offs.
    • Implications of outsourcing decisions.
    • Assessment of automation versus labor.
    • Impact of decisions upon production runs.
    Economic Value Added-based investment analysis.

    6. Economic Value Added Bonus Plan Design

    Why conventional incentive schemes fail to align managers with shareholders.
    Why effective incentive compensation requires reconciliation of an HR-centric approach with  shareholders'' requirement of a competitive return.
    Key objectives in incentive design:
      • Strong incentives.
      • Low retention risk.
      • Optimal shareholder cost.
    Classic and modern Economic Value Added incentive plans, and their 100-year evolution.
    Ensuring longevity of the bonus plan.
    Simulation of a value-based incentive scheme.
    Role of long-term incentives.
    Kindly click on Download to receive the complete program details in pdf format.