The EVA program has both positive and negative aspects that may influence senior management's willingness to move. On the positive side, there is more of potential for senior management to control their bonuses by allowing them to move to perspective companies they feel would give them the most advantages and vice versa. The willingness to transfer is also dependent on the behaviors of the managers. Some managers may be go-getters whereas others prefer to maintain the status quo. On the down side, the EVA system determines its bonuses based on previous years and on their predecessor's performance. What happens to the senior manager's compensation when his or her predecessor has performed well or not so well? To address this issue, we suggest the EVA system to be adjusted according to individual behaviors and establish an individual index for the first year to avoid ill effects of their predecessors by following the senior management's every move.
Question four asks how should an incentive compensation plan adopted by a firm relate to its industry type, market stability, and to the economic health of the firm? The relationship between industry type, market stability, and economic health of firm and the incentive plan can be determined in three steps. The first step is to look at industry type because it is clear that different industries will establish their unique baselines and react differently to market stability. Next step is to concentrate on past, present, and future market stability because a volatile versus a stable market will have a significant effect. The main goal is to create a formula that places adequate weight towards short-term performances while placing more emphasis towards long-term results. The third step is to focus on the company's performance in terms of industry type and market stability and to look at comparative performances given within the current market. For example, low performance will place more emphasis to short term results to get the company back on track whereas high performance will place considerable weigh to long-term results.
