The lack of controllability of EVA explains its decline a field study
This paper investigates the properties of EVA compensation schemes, which were considered as a major managerial innovation of the 90’s. The analysis is carried on in the framework of contract theory and based on a six year longitudinal case study. Such schemes induce highly volatile bonuses compared to more traditional ones. This is interpreted as a loss of controllability, where controllability is defined as the controllability of their performance measured by managers. The role of the target setting, based on external standards, and the absence of renegotiation are of particular significance in explaining this loss. This analysis explains the difficulties encountered in the implementation of these schemes and their relative decline.
|Date of creation:||2007|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00243065|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions that Need Answering," NBER Working Papers 7124, National Bureau of Economic Research, Inc.
- Stephen F. O'Byrne & S. David Young, 2006. "Incentives and Investor Expectations," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(2), pages 98-105.
- Robert T. Kleiman, 1999. "Some New Evidence On Eva Companies," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 80-91.
- 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.
- George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
- François Larmande & Jean-Pierre Ponssard, 2007. "Responsibility Accounting with a Privately Informed Agent," Working Papers hal-00243068, HAL.
- Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
- Dial, Jay & Murphy, Kevin J., 1995. "Incentives, downsizing, and value creation at General Dynamics," Journal of Financial Economics, Elsevier, vol. 37(3), pages 261-314, March.
- Stanley Baiman & Joel S. Demski, 1980. "Variance Analysis Procedures as Motivational Devices," Management Science, INFORMS, vol. 26(8), pages 840-848, August.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Jean-Pierre Ponssard & Nicolas Mottis, 2001. "Value Based Management and the corporate profit center," Post-Print hal-00365724, HAL.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00243065. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.