Social construction of linking executive compensation to EVA: a study on Indian corporates

Abstract

Purpose

“Paying for performance” has been the corporate mantra for ages, but finding the right performance benchmarks continues to be an enigma. Equally significant is the ongoing debate on the superiority of economic value added (EVA) aligned executive incentive plans over traditional financial performance benchmarks to ensure optimal goal congruence between the corporate and the executive performances. Consequently, this paper aims to explore a plausible linkage between executive compensation and EVA for Indian corporates from a social constructivist perspective.

Design/methodology/approach

The study uses a mixed method approach where the quantitative analysis of responses from the survey of senior personnel/finance executives of Indian firms is complemented by the qualitative analysis of personal interviews to provide contextual depth to the quantitative data.

Findings

Based on the study, the researchers construct an understanding that EVA is a superior concept but has restricted utility primarily owing to its computational complexity and unaudited characteristics. The researchers’ interpretive inference finds mandatory disclosure of an audited EVA figure in the corporate financial statements as a prime requirement for EVA to emerge as an objective and visible performance measure.

Practical implications

Attention of policymakers is sought towards standardising its computation and ensuring its disclosure to bring it at par with the conventional executive financial performance benchmarks.

Originality/value

The narrative on benefits and the challenges of adopting EVA aligned performance management system is provided directly by the top-level executives responsible for designing the “paying for performance” policies.

Citation

Tripathi, M., Kashiramka, S. and Jain, P.K. (2019), "Social construction of linking executive compensation to EVA: a study on Indian corporates", Journal of Indian Business Research, Vol. 11 No. 3, pp. 202-219. https://doi.org/10.1108/JIBR-10-2017-0173