IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Compensation Schemes based on Residual Income: A Concept to achieve strong Goal Congruence

  • Wolfgang Schultze

    ()

    (University of Jena, Faculty of Economics)

  • Andreas Weiler

    ()

    (University of Jena, Faculty of Economics)

Registered author(s):

    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.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Paper provided by Friedrich-Schiller-University Jena, School of Economics and Business Administration in its series Jena Research Papers in Business and Economics - Working and Discussion Papers with number 13/2007.

    as
    in new window

    Length:
    Date of creation: 20 Jul 2007
    Date of revision:
    Handle: RePEc:jen:jenjbe:2007-13
    Contact details of provider: Postal: Carl-Zeiss-Strasse 3, 07743 JENA
    Phone: +049 3641/ 9 43000
    Fax: +049 3641/ 9 43000
    Web page: http://www.wiwi.uni-jena.de/
    More information through EDIRC

    Order Information: Postal: If a paper is not downloadable, please contact the author(s) or the library of University of Jena, not the archive maintainer.

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:jen:jenjbe:2007-13. 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: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.