The Handbook of Board Governance, 2nd Edition

40Designing Performance for Long-Term Value: Aligning Business Strategy, Management Structure, and Incentive Design

Mark Van Clieaf

Partner, Organizational Capital Partners

• How should performance and success be measured in public companies?
• Why are total shareholder return and earnings per share not the optimal performance metrics for management incentives to align with long-term shareholder value?
• What key performance metrics should management be measured on to align the business strategy and value drivers of both the current and future value of the enterprise?

BlackRock, the largest asset manager in the world, wrote to the CEOs of the S&P 500 strongly reinforcing some of these performance measurement questions. Larry Fink, BlackRock's CEO, wrote:

It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many companies have cut capital expenditure and even increased debt to boost dividends and increased share buybacks; we do recognize the balance that must be achieved to drive near-term performance while simultaneously making those investments—in innovation and product enhancements, capital and plant equipment, employee development, and internal controls and technology—that will sustain growth; explain to investors what metrics shareholders should use to assess their management team's success over time.¹

A majority of public companies are missing essential strategic and operating ...