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EVA and the Controllability-congruence Trade-off: An Empirical Investigation

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Author Info
François Larmande
Jean-Pierre Ponssard ()

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Abstract

Incentives theory suggests that compensation schemes should be analyzed along two dimensions: controllability and congruence. Most schemes cannot satisfy both criteria at once. EVA bonus schemes, a major managerial innovation of the 90’s, favor the congruence criterion. This paper questions ist properties along the controllability dimension. The question is addressed through an in-depth case study: after three years in operation the actual bonuses paid by the system, as well as qualitative feedback from the managers involved, are analyzed. It is argued that EVA bonus schemes may have a major controllability problem.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1257.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1257

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Related research
Keywords: EVA management compensation controllability-congruence trade-off compensation standards

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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  1. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June. [Downloadable!] (restricted)
  2. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall. [Downloadable!] (restricted)
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  3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  4. Wallace, James S., 1997. "Adopting residual income-based compensation plans: Do you get what you pay for?," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 275-300, December. [Downloadable!] (restricted)
  5. Stephen Riceman & Steven Cahan & Mohan Lal, 2002. "Do managers perform better under EVA bonus schemes?," European Accounting Review, Taylor and Francis Journals, vol. 11(3), pages 537-572, September. [Downloadable!] (restricted)
  6. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
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This page was last updated on 2008-9-22.

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