Kherson wrote: Since Chemtrade has decided to change the metrics on their Long Term Grants, it will help to compare those new PMP Performance Metrics with other companies that already have those same metrics in place! First up, Chemtrade's definition of ROIC.
The following are the changes for 2020.New for 2020 Starting with awards for the 2020 performance year, the performance metrics plan will have two metrics instead of three: • Relative total unitholder return will be our key measure of unit performance. It compares Chemtrade’s total return to the total return of each of the companies that make up the S&P/TSX Dividend Composite Index, a broad-based index of Canadian dividend-paying stocks. • Return on invested capital (ROIC) improvement replaces EBITDA growth. ROIC improvement is a key driver of Chemtrade’s business that will focus management on improving and optimizing our portfolio. ROIC, calculated as annual EBITDA divided by average debt, plus the book value of unitholder equity, measures how effectively we use capital that has been invested in our business by unitholders and lenders.
Now here are the Long Term Incentive Metrics definition for ROIC for CN Rail.
Seventy percent (70%) of the PSU award value is subject to the achievement of a target related to the Company’s average three-year ROIC over the plan period and the payment will be conditional upon meeting a minimum average closing share price during the last three months of 2021. The ROIC for each of the applicable plan years is generally calculated as net income before interest expense, divided by the total of the Company’s average net indebtedness and the average shareholders’ equity, and may, in certain instances, be adjusted for certain items as determined by the Committee. ROIC measures the Company’s efficiency in the use of its capital funds and is viewed as a key measure of long-term value generation to its shareholders. ROIC performance objectives are based on CN’s business plan.
What is strking is that Chemtrade uses EBITDA as a metric in determining ROIC whereas CN uses net income before interest expense as the metric in determining ROIC! Big difference!
Kherson