CalPERS Adds New Element in Ranking

The California Public Employees’ Retirement System said it will begin to use economic value added, or EVA, measurements to help determine the 10 most under-performing companies. The annual ranking, published in February, spotlights companies that the pension fund, the country’s largest one for public employees, thinks are shortchanging shareholders by not living up to their potential. The EVA formula was developed at New York-based Stern Stewart & Co. EVA calculates the cost of capital--money tied up in equipment, real estate, inventories, research and employee training, as well as interest on debt--and compares it with operating profit after taxes. If the cost of capital is less than after-tax operating profit, the company is in good shape. If the cost of capital is greater, something’s wrong. CalPERS had been measuring performance by corporate governance and the company’s stock price relative to its peers.