This study investigates whether using operating cash flows, capital expenditure/ R&D, dividends, or economic value added (EVA) as performance measure in CEO’s compensation plan affects firm-level over-investment of free cash flow. Focusing on S&P 500 firms from 1993 to 2015, this paper demonstrates that firms using operating cash flows as performance measures in CEO’s compensation plan are less likely to over investment their free cash flows. However, using EVA as CEO performance measures boosts over-investment. However, I find no evidence showing that using capital expenditure/ R&D, or dividends as performance measures affect firms’ over-investment.