Do Managers Perform Better Under Eva Bonus Schemes?

41 Pages Posted: 13 Nov 2000

See all articles by Stephen S. Riceman

Stephen S. Riceman

Massey University

Steven F. Cahan

University of Auckland Business School

Mohan Lal

Massey University (Deceased)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2000

Abstract

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 an universally appropriate base for reward systems.

JEL Classification: M40, M41, M46, J33

Suggested Citation

Riceman, Stephen S. and Cahan, Steven F. and Lal, Mohan, Do Managers Perform Better Under Eva Bonus Schemes? (September 2000). Available at SSRN: https://ssrn.com/abstract=242780 or http://dx.doi.org/10.2139/ssrn.242780

Stephen S. Riceman

Massey University

Palmerston North
New Zealand

Steven F. Cahan (Contact Author)

University of Auckland Business School ( email )

Faculty of Business & Economics
Private Bag 92019
Auckland
New Zealand

Mohan Lal

Massey University (Deceased)

N/A

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