Total Shareholder Return (TSR) and Management Performance: A Performance Metric Appropriately Used, or Mostly Abused?

8 Pages Posted: 18 Sep 2012

See all articles by Roland J. Burgman

Roland J. Burgman

AssetEconomics Inc

Mark Van Clieaf

MVC Associates International

Date Written: September 17, 2012

Abstract

This article identifies the complex issues associated with the unconsidered use of total shareholder return (TSR) as a metric to represent the gains (or otherwise) in shareholder wealth and in contexts such as long-term incentive compensation and proxy voting by shareholders (including “say on pay”). Not all TSR is created equal. Other measures, such as economic profit (EP), return on invested capital (ROIC), and future value (FV), need to be introduced to effectively interpret the quality of TSR. There are not one but eight states of the quality of TSR, and this has implications for effectively evaluating true pay-for-performance alignment and considered say-on-pay voting by institutional investors everywhere, including under the new Dodd–Frank legislation in the United States.

Keywords: Incentive Compensation, Pension Fund, Proxy Voting, Say on Pay, Total Shareholder Return (TSR), Work Levels

Suggested Citation

Burgman, Roland J. and Van Clieaf, Mark, Total Shareholder Return (TSR) and Management Performance: A Performance Metric Appropriately Used, or Mostly Abused? (September 17, 2012). Rotman International Journal of Pension Management, Vol. 5, No. 2, 2012, Available at SSRN: https://ssrn.com/abstract=2147777 or http://dx.doi.org/10.2139/ssrn.2147777

Roland J. Burgman (Contact Author)

AssetEconomics Inc ( email )

73 Washington Place PH
North York, NY 10011
United States

Mark Van Clieaf

MVC Associates International ( email )

3001 North Rocky Point Dr. E
Suite 200
Tampa, FL 33607
United States

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