Compensation that aligns the interests of managers and owners creates the greatest likelihood for wealth creation for both parties. Consequently, compensation should reward managers for actual value created. For publicly traded companies, actual value is objectively determined by observing changes in total shareholder return (TSR). For private companies or business units below the corporate level, valuations must rely on peer company data.

However, managers can only be motivated by achievement of factors over which they have substantial influence. The distinction between operating value and strategic value is a way to create a clearer line-of-sight between elements of TSR that are more or less under management's influence. Operating value is directly related to current profitability, which managers can clearly relate to their decisions and actions. Strategic value can, through the planning process, be related to initiatives and investments planned or underway. The market values those investments, often long before they have had any chance to generate revenues.

Every company faces the mismatch between the compensation horizon of managers (generally within the current fiscal year) and the strategic horizon of investments with the longest wait for expected returns (three or more years). Accounting for strategic value in the compensation plan seeks to overcome this issue without the pitfalls of management stock options.