Relative total shareholder return (TSR) metrics are still increasing in popularity. Last year, nearly half of all S&P 500 companies had TSR in their long-term compensation programs – and most of them were based on relative performance measurement.
To many companies, these relative TSR metrics are a cure-all; they provide a relative performance measure with transparent measurement criteria, and it links back directly to shareholder value creation. After all, the more the shareholder benefits, the more the executives benefit, as well.
But is all well with relative TSR performance metrics? Recent analyses suggest there may be some problems with how these metrics are most commonly configured.