EVA and incentive systems

• EVA is an ideal bonus base
  • EVA is by definition the excess return to shareholders (giving away all EVA would leave shareholders with a return of 12,5% with our hypothetical company)
  • EVA based bonuses to management can turn out to be quite big if management does well. This gives incentive to management to improve profitability and thus the bonuses will be only part of the disretionary value created => this kind of bonuses are good also for owners
  • This kind of bonus is a way to pay according to true performance
  • Bonus is objective (there are no subjective budgets determing them)
  • Bonus has no limits because we do not want to limit company´s EVA
• Investors and equity analysts tend to take a positive stand to this kind of bonuses (like well designed share options)