November 5, 2012
TSR & Management Performance: A Metric Appropriately Used, or Mostly Abused?
– Broc Romanek, CompensationStandards.com
In our “Pay-for-Performance” Practice Area, I recently posted this article by Roland Burgman and Mark Van Clieaf that “identifies the issues associated with the unconsidered use of 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.”