ECONOMIC VALUE ADDED IN FUNCTION OF DETERMINING INCENTIVE COMPENSATION SYSTEMS

Corporate enterprises develop specific systems of rewarding managers for successful performances. By taking into account the need of creating shareholder value, it is necessary to implement method for measuring performance that would satisfy the objectives of shareholders and managers’ interests. The optimal compensation model assumes that managers are motivated to create added value for shareholders. One method for modeling the reward system is economic value added (EVA). Economic value added represents a very attractive instrument for measuring corporate performances and its management. The subject of this paper was the analysis of the economic value added in function of creating incentive systems for managers, as well as the advantages and disadvantages of application of this method. Economic value added was presented as a concept that brings the objectivity in the system of modeling long-term incentives for managers and, thereby, reduces the risks associated with the incentive system.