Publications
Publications
- January 2022 (Revised February 2022)
- HBS Case Collection
Introducing EVA at ISS: A Better Way to Evaluate CEO Performance and Compensation?
By: Jonas Heese, Charles C.Y. Wang and James Weber
Abstract
In early 2019, Anthony Campagna, the global director of fundamental research at ISS EVA, a unit of the proxy advisory firm Institutional Shareholder Services (ISS), was preparing to release ISS's analyses of public company performance and CEO compensation ahead of Say on Pay (SOP) voting. ISS's reports helped institutions and other investors determine how to vote their shares at annual shareholder meetings. The report's assessment of CEO compensation for SOP relied on the degree of alignment between a CEO’s industry-relative compensation and the firm's industry-relative performance. ISS had long used total shareholder return (TSR)—a measurement based on a company’s stock price appreciation and dividend payouts—to measure company performance. In 2019, for the first time, ISS supplemented the TSR measure with economic value added (EVA)—a measurement based on accounting data that combined operating profit and a charge for capital—to measure performance. ISS believed that using EVA as a complement to TSR painted a more complete picture of company performance than TSR alone. EVA was, however, a far more complicated and not widely understood performance metric. Interpreting EVA for certain types of firms—young, high-growth, investment-intensive—could also be challenging. Campagna wondered how market participants would respond to ISS’s use of EVA in its voting recommendations, particularly when TSR and EVA could make company performance look quite different. Did the benefits of EVA make managing its complexities worthwhile? Was EVA too complicated for investors to understand? Would EVA work equally well for young and high-growth firms as for mature firms? How might Campagna best promote the use of EVA?
Keywords
Jobs and Positions; Compensation and Benefits; Performance; Performance Productivity; Measurement and Metrics; Analytics and Data Science; Value; Business or Company Management; Performance Evaluation; Business and Shareholder Relations
Citation
Heese, Jonas, Charles C.Y. Wang, and James Weber. "Introducing EVA at ISS: A Better Way to Evaluate CEO Performance and Compensation?" Harvard Business School Case 122-061, January 2022. (Revised February 2022.)