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Relative Performance Payment in Cooperatives – A Model-Theoretical Analysis

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  • Zieseniss, Roland
  • Kuehl, Rainer
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    Abstract

    Governing the cooperatives’ management by payment systems turns out to be a non-trivial problem due to the specific characteristics of the legal structure. Evaluating the management’s performance is complicated by the business relations between members and their cooperative. A relative performance payment can make a significant contribution to the reduction of target inconsistencies between the members and the management of cooperatives. It is based on the idea that for evaluating the performance of a manager not only the company's results of its "own" company are used, but also the competitors’ or industry’s results. There are three advantages of a relative performance evaluation: • The inclusion of the results of other companies allows reducing systematic arising risks of the compensation scheme for the CEO. • The compensation scheme can include the cooperative’s profit for the evaluation of the market success and a comparison of the purchase prices for the members´ products in order to measure the member value. This will lead the CEO’s decisions and labor effort toward members´ aims. • The members can use the compensation scheme as a strategic variable to reduce competition intensity between the cooperatives. The paper considers the incentive characteristics of linear contracts based on relative performance evaluation for CEOs under the specific requirements of cooperatives. The analysis includes a comparison of different compensation schemes and their utility for cooperatives in several market scenarios.

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    Bibliographic Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2013 Conference (57th), February 5-8, 2013, Sydney, Australia with number 152162.

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    Date of creation: Feb 2013
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    Handle: RePEc:ags:aare13:152162

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    Related research

    Keywords: Cooperative Governance; compensation schemes; relative performance payment; Cournot model; Demand and Price Analysis; Productivity Analysis; Research Methods/ Statistical Methods;

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    1. Brent Hueth & Philippe Marcoul, 2009. "Incentive Pay for CEOs in Cooperative Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1218-1223.
    2. Robert Gibbons & Kevin J. Murphy, 1991. "Relative Performance Evaluation for Chief Executive Officers," NBER Working Papers 2944, National Bureau of Economic Research, Inc.
    3. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
    4. Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
    5. H. Christopher Peterson & Bruce L. Anderson, 1996. "Cooperative strategy: Theory and practice," Agribusiness, John Wiley & Sons, Ltd., vol. 12(4), pages 371-383.
    6. Richards, Timothy J. & Klein, Kurt K. & Walburger, Allan M., 1998. "Principal-Agent Relationships in Agricultural Cooperatives: An Empirical Analysis from Rural Alberta," Journal of Cooperatives, NCERA-210, vol. 13.
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