Bonus System
EVA has provided a platform on which a flexible bonus payment system can be based. Employees will be paid bonus only when they earn at least equal to the cost of capital employed.This links the bonus with the end result and forces employees to act like shareholders. Proponents of bonus systems based on EVA have suggested that bonuses for corporate managers should always be tied to the long-term capital because short-term EVA can sometimes be manipulated upwards to the cost of long run EVA. The long run can be incorporated into EVA-based bonuses, that is, by banking the bonuses. This would mean that when EVA is good, the managers earn a certain percentage of it, but the bonus should not be paid out of them entirely. If the periodic EVA is negative, then the bonus put in the bank is negative and it decreases the balance already earned, This exposes the managers partly to the risk the shareholders are used to bear. At the same time, it gives incentives to good performers and encourages the bad performers to improve their performance.