| It's well-acknowledged that there is the separation of ownership and control in the modern corporation. Shareholders rely on managers as their agents to adopt policies that maximize the value of their shares. However, like other human beings, managers tend to engage in the activities that increase their own well-being and less likely to act in the best interest of the shareholders' if appropriate incentives aren't given and their activities aren't monitored. So one of the most critical roles of the board of directors is to create incentives, to find out how to monitor its agents and how to evaluate the performance of management.From my point of view, EVA that is the capital return less the cost of capital is the best measure of the management performance., In formula form we have:EVA=NOPAT-Kw ×X (NA)Where EVA is the economic value added, NOPAT is the net operating profit after tax,NA is the net assets .EVA method should be employed with for it compares the capital return to the capital cost. In estimating EVA, when it is zero or more, it means the capital return exceeds the investment's opportunity cost. And then it can be found out whether managers perform well enough to create the value added that the shareholders expect.To evaluate managers' performance and figure out the rewards, the board of directors should establish performance standards firstly-the EVA objectives. Second, appropriate the actual EVA in a given period. The actual EVA minus objectives will leave the result if managers meet the target or not. Performance management system is a process of establishing performance appraisals and evaluating performance in order to monitor and motivate firm agents. Obviously, EVA model turns out a scientific appraisals to motivate the managers. The EVA model can be illustrated as:when A> B R=W +K1B +K2(A-B)when A |
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