Economic Profit Measurement and Target Setting
We use economic profit measures to assess historical performance and set targets for future performance. We have developed a methodology to adjust the capital charge in the economic profit measure to take account of the "delayed productivity" of capital. We have also developed empirical models of changes in "future growth value" to create a target setting process that is accurate and consistent with discounted cash flow valuation.
Incentive Compensation Assessment and Design
We use "pay leverage" and "wealth leverage" measures to quantify management incentives for shareholder value growth and for value-less revenue growth. We design incentive plans based on shareholder return and/or economic profit improvement to provide strong, sustainable and cost-efficient incentives for corporate and business unit managers. We assess the trade-offs between strong incentives, retention risk and shareholder cost by using Monte Carlo simulation to measure retention risk and empirical research on the impact of incentives on company performance to measure net shareholder cost.
Competitive Pay Analysis
We develop competitive pay estimates using multi-factor models that capture the pay impact of position, industry, company size, business risk and performance. Our models give companies and directors a much better understanding of labor market dynamics than conventional competitive pay analyses. They show, for example, that annual pay decisions at the average company create stronger incentives for revenue growth than value growth. But our research also shows that a surprising number of companies "fight the tide" and make annual pay more sensitive to value growth than revenue growth.
We develop discounted cash flow valuations of business units being considered for acquisition or sale. We use empirical models based on peer data to validate our forecast and terminal value assumptions. Our sales decay models predict sales growth as a function of size and prior sales growth. Our terminal value models predict market value as a function of capital, economic profit and sales growth.
Information on our core methodologies is available by clicking the links to the right. Additional information can be found in publications
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