 Compensation Schemes based on Residual Income: A Concept to achieve strong Goal CongruenceWolfgang Schultze () and
Andreas Weiler ()
No 13/2007, Jena Research Papers in Business and Economics - Working and Discussion Papers (Expired!) from Friedrich Schiller University Jena, School of Economics and Business Administration Abstract: This paper examines compensation schemes in order to induce efficient investment decisions by a manager. The problem under investigation is the manager's "impatience". A shorter time horizon or higher personal cost of capital may induce him to underinvest relative to the efficient investment level. A possible solution for this problem was provided by Rogerson (1997). He provides an allocation rule which leads to a positive residual income in each period if and only if the net present value of the project is positive and therefore leads to strong goal congruence. Thus, if the manager is rewarded based on adjusted residual income, he will choose the efficient investment level regardless of his own time preferences or time horizon. In this paper, we show that strong goal congruence is also attainable by special compensation functions. In this context we provide a periodic performance measure of value creation and value realization. Date: 2007-07-20 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:jen:jenjbe:2007-13 Access Statistics for this paper More papers in Jena Research Papers in Business and Economics - Working and Discussion Papers (Expired!) from Friedrich Schiller University Jena, School of Economics and Business Administration |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.