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Monday, Apr 22, 2002

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EVA factor in corporate performance

Our Bureau

KOLKATA, April 21

THE EVA (economic value added) system in companies is a key element of the less talked about, but very important, internal corporate governance, and is marked by well laid out principles of measuring employee performance and an appropriate rewards system.

And, for the purpose for working out and tracking EVA, all intangibles such as brand value and goodwill have to be taken into account by the balance sheet.

Making a presentation at an interactive session on `Corporate governance and shareholder wealth maximisation', organised by The Bengal Chamber of Commerce & Industry here, Mr Joel M. Stern, Managing Partner of Stern Stewart & Co of the US, and an authority on financial economics, corporate performance measurement and incentive compensation, said in order to arrive at a proper EVA, there was a need to measure corporate performance correctly.

Describing himself as the Oprah Winfrey of Finance, Mr Stern, the celebrated co-author of The EVA Challenge, said the issue revolved around positive net present value of the company, as an indicator of the rate of return on total capital (ROTC).

Stating that EVA and NPV gave exactly the same values, he said EVA played a crucial role in acquisitions by corporates, as borne out by the case of French cement major Lafarge in its abortive bid to acquire Blue Circle of the UK.

Dwelling at length on the performance measuring parameters, Mr Stern said any bonus schemes by companies have to be based on improvements in performance, guided by the concept of a positive EVA. Pointing out that there should be no cap on incentives, he said what was crucial is to keep people in an organisation working together to create value on a sustained basis.

Describing employees as the true `value change agents' of the organisation, he said the objective should be to work towards `management value added' (MVA).

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