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An Excerpt from:
Reward Executives for Creating Shareholder Value
By Eleanor Bloxham
Published in Bank Accounting and Finance January, 2000
"A value management system instills financial discipline throughout a company."
"In a value management system, decisions are based on projections of the change in value that will occur as a result of management's choices."
"In practice, value management serves several functions. It measures and monitors performance; helps set minimum thresholds for pricing; properly informs decision making (including acquisition and divestiture analyses); evaluates strategic plans, capital budgets, and alternative balance sheet management strategies; rewards managers for value creation; and can be used to balance multiple performance measures within a scorecard concept."
"This example shows how value management concepts can change the planning and budgeting processes of an organization. Under traditional systems, managers tend to project low and deliver high, if possible. When managers focus on shareholder value creation, the emphasis moves to performance that is actually delivered."
"A value management system empowers and motivates managers to explore and monitor strategies that create the most value, rather than to accept existing strategies. In addition, managers become interested in ensuring that their staffs use value concepts to make better decisions. Moreover, value management creates an equitable barometer for rewarding managers."
"The bottom line: value management affects the way an organization thinks. In this way, it improves an organization's focus and its ability to deliver results. It can be used to integrate multiple disciplines in an organization, including financial, human resources, investor relations, line operations, and sales, to focus on shareholder value."
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