Economic Value Added (EVA) Bonus Scheme

The separation between the ownership and the management is notable in modern firms. In order to protect their interests and to avoid the executives' moral hazard and adverse selection, shareholders need to design a system to impel the executives to maximize the firm's value. Thinking of the many problems in the process of the socialism economic system innovation, an EVA bonus plan is put forward to settle the irrelevance between the executives' pay out, achievement and bonus in the firms. EVA has many merits when it is compared with other traditional evaluation indexes. EVA attaches importance to capital costs, adjusts net profit to provide real management achievements, unifies the index of decision-making, achievement evaluation, and stimulating, and supplies ideas of management and value creating. So when it acts as evaluation index in the EVA bonus plan, the plan can settle the principal-agent problem successfully.The thesis begins with the problems in the system of the appraisement and stimulating, indicating that in the process of the socialism economic system innovation establishing suitable executive bonus plan and perfecting the stimulating system has important theoretical and realism meaning. Then the thesis concludes the Chinese and foreign bonus plan. On the basis of former experience, entrepreneur manpower theory, Agent theory and stimulating theory the thesis put forward the cut in point of EVA bonus plan: first, use only EVA index as the appraisement index in stead of the various accounting indexes; second, establish EVA bonus plan which is better than the old in the index, standard and pattern in order to control executive's opportunism, reducing the agent cost, stimulate the enthusiasm. Then in the theory analysis of EVA, the thesis introduces the meaning of EVA, the adjustment of EVA, the case analysis of EVA and the characteristic and application of EVA. It can be see form the thesis that EVA can be used in many aspects which includes project evaluation, corporational management and executive's achievement evaluating and bonus plan.The corn of the thesis is in the fourth chapter. Form the view of the Agent theory, bonus plan can stimulate the executive to do as the shareholders expect. Then EVA has many merits which makes it better than the ordinary indexes. EVA bonus plan is put forward which is maked up of seven correlative aspects. EVA bonus plan has many advantages which enable it can hold the executive's opportunism, reduce Agent cost and pefect the present stimulating system. At last the thesis is concluded and some suggestion are put forward.