Wealth Creation and Managerial Pay: MVA and EVA as Determinants of Executive Compensation

Designing effective compensation contracts has become increasingly complex due to the globalization of the executive work force and the multitude of incentive schemes. We examine the relationships between managerial pay and firm performance among domestic and global firms using economic value added (EVA) and market value added (MVA) to assess wealth creation. Our work suggests that top managers in domestic- and globally focused firms are not only incented to increase EVA, but also rewarded for past additions to MVA. The results of our research suggest that managers of highly globalized firms tend to be paid at higher levels, reflecting the increased complexity of managing global firms