science

Market-Adjusted Performance Indicator

Market-Adjusted Performance Indicator is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Market-Adjusted Performance Indicator rather than just read about it. In short: The Market-Adjusted Performance Indicator (MAPI) measures the performance of a company's management using a relative performance indicator designed to capture management performance as holistically as possible by covering both short-term success and long-term impact. The MAPI is an important element for targeted corporate governance.

Key takeaways

Market-Adjusted Performance Indicator belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Market-Adjusted Performance Indicator to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Market-Adjusted Performance Indicator from memory before moving on to harder problems.

Reference excerpt

The Market-Adjusted Performance Indicator (MAPI) measures the performance of a company's management using a relative performance indicator designed to capture management performance as holistically as possible by covering both short-term success and long-term impact. The MAPI is an important element for targeted corporate governance. Bengt Holmström, with his economic research and his findings, for which he was awarded the Nobel Prize for Economics in 2016, laid the theoretical foundation for the application of a relative performance indicator. It states that top management should be incentivised with a long-term relative performance indicator for its variable compensation. In the context of a research project of the University of Zurich under the direction of Ernst Fehr, the MAPI was developed and implemented with the consultancy firm Fehr Advice & Partners. To do this, a listed company's total shareholder return (TSR) is compared with the TSR of a customised, relevant peer group. This way external market shocks, for which the management should be neither rewarded nor penalised, can be excluded. The difference between the TSR of the company and that of its peer group provides insights into the actual performance of the CEO and top management. This makes management performance transparent. Ernst Fehr and Adriano B. Lucatelli calculated the MAPI for all the firms in the Swiss Performance Index. The compensation model of the Liechtensteinische Landesbank is mainly based on the concept of the MAPI.

References

Worked examples

Example 1 — a first encounter with Market-Adjusted Performance Indicator

Start with the simplest possible case. Write down what Market-Adjusted Performance Indicator claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Market-Adjusted Performance Indicator before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Market-Adjusted Performance Indicator ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Market-Adjusted Performance Indicator

In research: Market-Adjusted Performance Indicator appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Market-Adjusted Performance Indicator in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Market-Adjusted Performance Indicator is common in secondary-school and first-year university syllabi. It links to neighbouring topics Business intelligence, Business term stubs, Business terms, so understanding it makes those chapters shorter.
In everyday life: Look for Market-Adjusted Performance Indicator outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Market-Adjusted Performance Indicator in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Market-Adjusted Performance Indicator means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Market-Adjusted Performance Indicator out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Market-Adjusted Performance Indicator in simple terms?

Why does Market-Adjusted Performance Indicator matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Market-Adjusted Performance Indicator?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Market-Adjusted Performance Indicator.