Core Operating Shareholder Return (COSR)

Total Shareholder Return
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Jaap de Jonge
Editor, Netherlands

Core Operating Shareholder Return (COSR)

🔥NEW Total Shareholder Return (TSR) is a measure that is meant to be used by (potential) INVESTORS (shareholders) to quickly see how much value (for them) was generated by a public company over some period and perhaps compare that with similar peer companies.

Desai et al. argue Total Shareholder Return (TSR) is and can also be used for EXECUTIVE COMPENSATION — provided certain issues with TSR are eliminated. At least when it's used to determine the performance of top management.
But let's start with a quick recap of the PROs and CONs of Total Shareholder Return (TSR):


  1. Total Shareholder Return or TSR is a good, simple metric for investors to compare the performance of public companies.
  2. It is a market-based performance metric as it is calculated on publicly available info: share prices, dividends and stock buybacks. It reflects any kind of value creation for the shareholders. So it is relatively objective/neutral and complete.
  3. TSR is also somewhat forward-looking in that it reflects the expectations of investors about the company in the future.
  4. Because Total Shareholder Return is calculated as a percentage, TSR can be easily compared from one company to another or benchmarked against industry or market returns, without having to worry about a bias regarding company size.


  1. As a result of its nature, TSR can not be calculated at divisional level (Strategic Business Unit) and below. Only an overall calculation is possible of the entire company.
  2. Also as a result of its nature, TSR can not be observed for privately held companies. There is no known share price in such companies.
  3. Because TSR conflates performance associated with operations and strategy (the result of management decisions) with the performance arising from cash distributions (dividends and buybacks), it is less appropriate for judging the effectiveness of its top management, governance and executive compensation.
  4. TSR assumes any dividends will be reinvested by the shareholder in shares of the same company. This is not realistic. Moreover this means that TSR of an underperforming company will be deflated by TSR because of the assumption that investors will reinvest dividends in the company (despite it is underperforming to similar companies). On the other hand this means that TSR of a market outperforming company will be inflated by TSR because of the assumption that investors will reinvest dividends in the company's successful stock (but there is no guarantee that this will actually happen).
  5. Even if buybacks do represent a source of value to the shareholders (just like an increase in the share price), this does not mean that such buybacks also represent a source of value to the company. For the company any stock buyback does not create any value.

TSR for Top Management Performance and Executive Compensation

To deal with the mentioned distortions (CONs 3, 4 and 5), Desai et al. suggest a new metric: Core Operating Shareholder Return (COSR). COSR cleanses TSR of the mentioned distortions in the following 2 ways:
  1. COSR no longer assumes DIVIDENDS to be reinvested in the same company's stock, but in a broad market based benchmark.
  2. At the same time, the cash used by the company to BUY BACK ITS OWN SHARES is also assumed to be invested in this broad market based benchmark.
Unfortunately the new COSR measure/ratio does make calculating TSR a little more complex, but it indeed provides a more precise view of the value that was actually created by sound managerial (operational and strategic) decisions. As a result COSR is in my opinion a better measure to use for judging top management performance of public companies and for executive compensation purposes than TSR.
Source: Desai M., Egan M., and Mayfield S. "A Better Way to Assess Managerial Performance", HBR Mar-Apr 2022, pp. 134-141.



Broad Market Based Benchmark in COSR

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Jaap de Jonge
Editor, Netherlands

The Benchmark in COSR

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Management Consultant, India

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More on Total Shareholder Return:
DIscussion Topics
👀Core Operating Shareholder Return (COSR)
Dividends in Total Shareholder Return
Formula and Example of TSR Calculation
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