A major manufacturer and supplier of original drive train components was in the acquisition mode. The CEO wanted to make sure that all acquisitions and existing businesses were run in a way that maximized their value and utilized assets efficiently. He wanted an incentive plan that would reward managers for finding and making acquisitions that were not overpriced and would be accretive in value to the company. The incentive should reward managers on an equal footing for creating value over a two to three year period.

The solution was an EVA® (Economic Value Added) based annual incentive. Division managers were measured and rewarded mainly on the value created by their operation, and corporate managers were rewarded based on corporate value created. While the incentive pays out annually, targets are set for three years at a time, and are directly tied to the amount of capital each division has at its disposal.

The plan has worked remarkably well. The company has been one of the strongest and most consistent performers in its industry, and has made a series of acquisitions that have added value to the company.