The new CEO of the firm has told the vice president of HR that all HR activities must use the cost of capital as the benchmark against which the returns from their activities are measured. Which measure of effectiveness is the new CEO implementing?

Question

Quizplus · Accepted Answer

The measure of effectiveness being implemented by the new CEO is economic value added (EVA). EVA measures the financial return of an investment or activity against the cost of capital, which aligns with the CEO's directive to use the cost of capital as the benchmark. The balanced scorecard involves multiple measures of effectiveness beyond just financial metrics, while subjective HR metrics may not be specific or standardized enough to use as a benchmark. Return on assets (ROA) is a financial ratio that measures a company's profitability, but it does not explicitly factor in the cost of capital.

The New CEO of the Firm Has Told the Vice