Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. At the chief executive level in a publicly-held company, increases in stock prices are directly observable, and therefore a CEO's bonus can take the form of stock options or stock appreciation rights.
The book made the case that many of the best companies adhered to a set of principles called core values, provoking managers to stampede to off-site meetings in order to conjure up some core values of their own.
First, less capital was employed to produce the same finished goods; and second, production became more efficient, raising operating margins. A production manager might work to targets for cost per unit, quality, and turnaround time.
Key value drivers are not static; they must be regularly reviewed. Rappaport, Creating Shareholder Value... Value driver trees like this one are usually linked into ROIC trees, which are in turn linked into multiperiod cash flows and valuation of the business unit.
Target setting is highly subjective, yet its importance cannot be overstated. As with any major program of organizational change, it is vital for top management to understand and support the implementation of VBM. Valuation requires a longer view, because the value of a strategy cannot be estimated without forecasting the cash flows over the long run.
Measuring and Managing the Value of Companies. It introduces the reader to the ethical conflicts that have long troubled financial professionals, from the lure of sure-thing markets to the troubling pervasiveness of "soft dollar" benefits in the brokerage industry. How can they translate practical and moral reflection in marketing into moral action?
All the same, developing a performance measurement system is relatively straightforward for a company that understands its key value drivers and has set its short- and long-term targets.
In addition, the manager's own evaluation would be based on long- and short-term targets that measure progress toward the overall value creation objective. Maximizing Shareholder Value... Assessing the results of the valuation and the key assumptions driving the value of the strategy.
Each business unit should have its own performance measures—measures it can influence. The authors have studied, and in many cases, helped put in place the recovery systems that have saved many organizations.
The first principle in compensation design is that it should provide the incentive to create value at all levels within an organization. One company I worked with valued extremely hard work and dedication; its employees were known to work late into the evenings and on weekends. Most values statements are bland, toothless, or just plain dishonest.