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  • Harvard Business Review

A Better Way to Assess Managerial Performance

By: Mihir Desai, Mark Egan and Scott Mayfield
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Abstract

Total shareholder return (TSR) has become the definitive metric for gauging performance. Unlike accounting measures such as revenue growth or earnings per share that reflect the past, TSR is based on share price and thus captures investor expectations of what will happen in the future, which is its chief attraction.
The problem is that TSR conflates performance associated with strategy and operations with that arising from cash distributions (dividends and buybacks). In this article, the authors discuss the distortions embedded in TSR and propose a new metric, core operating shareholder returns, that emphasizes operational performance. It also provides a comprehensive assessment of the buyback revolution—and the verdict is quite damning.

Keywords

Total Shareholder Return; Buybacks; Core Operating Shareholder Return; Management; Operations; Performance; Measurement and Metrics

Citation

Desai, Mihir, Mark Egan, and Scott Mayfield. "A Better Way to Assess Managerial Performance." Harvard Business Review 100, no. 2 (March–April 2022): 134–141.
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About The Authors

Mihir A. Desai

Finance
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Mark L. Egan

Finance
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E. Scott Mayfield

Finance
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More from the Authors

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    4 Business Ideas That Changed the World: Shareholder Value

    By: Adi Ignatius, Lynn Paine, Mihir Desai and Carola Frydman
More from the Authors
  • Conflicting Interests and the Effect of Fiduciary Duty: Evidence from Variable Annuities By: Mark Egan, Shan Ge and Johnny Tang
  • How Do Investors Value ESG? By: Malcolm Baker, Mark Egan and Suproteem K. Sarkar
  • 4 Business Ideas That Changed the World: Shareholder Value By: Adi Ignatius, Lynn Paine, Mihir Desai and Carola Frydman
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