A Shareholder Value and Agency Theory Based Compensation System

Inhaltsverzeichnis (Table of Contents)

• INTRODUCTION
• RATIONALE FOR THE SHAREHOLDER VALUE APPROACH
• VALUE-BASED MANAGEMENT
• Shareholder versus Management Interests
• The Relation to other Stakeholders
• SHORTCOMINGS OF ACCOUNTING NUMBERS
• Unreliable Performance Measurement - Earnings
• LIFO versus FIFO
• The Amortization of Goodwill
• Time Value of Money
• Return on Investment (ROI) and Return on Equity (ROE)
• Long-term View
• Intellectual Capital
• SHAREHOLDER VALUE ANALYSIS METHODS
• RAPPAPORT'S FRAMEWORK For Value CreATION
• The Estimation of the Cash Flow
• Cost of Capital
• Cost of Equity
• The Risk-Free Rate
• The Market-Risk Premium
• Estimating the Systematic Risk
• Cost of Debt
• Residual Value
• Rappaport's Shareholder Value Network
• COPELAND, KOLLER AND MURRIN APPROACH (MCKINSEY)
• ECONOMIC VALUE ADDED (EVA®)
• ASSESSMENT OF THE SHAREHOLDER VALUE ANALYSIS METHODS
• SIMILARITIES & DISTINCTIONS
• PROBLEMATIC ISSUES
• Information Deficits
• Hockey-Stick Effect
• Compound Problem
• Manipulation Problem
• PERFORMANCE EVALUATION AND COMPENSATION SYSTEMS
• AGENCY THEORY OVERVIEW
• PRINCIPAL-AGENT CONFLICTS
• Adverse Selection
• Moral Hazard
• The Horizon Problem
• Risk Differential Behavior
• COMPENSATION SYSTEMS
• Recent Research
• Performance Measurement
• Stock Options
• Rewarding Outperformance
• Including Operating Units and Setting Targets
• E-BUSINESS: A PARADIGM FOR INNOVATIVE PERFORMANCE DRIVEN COMPENSATION SYSTEMS
• PROSPECT AND DEVELOPMENT

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study focuses on developing a compensation system based on shareholder value and agency theory. It aims to explore the shortcomings of traditional accounting measures and presents alternative methods for performance evaluation. The study analyzes different shareholder value analysis methods and their implications for compensation design.

• Shareholder Value Analysis Methods
• Agency Theory and Principal-Agent Conflicts
• Performance Measurement and Compensation Systems
• E-Business and Innovation in Performance-Driven Compensation
• The Impact of Shareholder Value Approach on Stakeholder Relationships

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: This chapter introduces the topic of the study and its objectives. It highlights the growing importance of shareholder value maximization and the limitations of traditional accounting measures in reflecting true company value.
• Rationale for the Shareholder Value Approach: This chapter discusses the principles of value-based management and how it aligns with shareholder interests. It explores the shortcomings of traditional accounting metrics such as earnings per share and return on equity.
• Shareholder Value Analysis Methods: This chapter presents various methods for analyzing shareholder value, including Rappaport's framework, Copeland, Koller and Murrin approach (McKinsey), and Economic Value Added (EVA®). It explains the underlying principles and methodologies of each approach.
• Assessment of the Shareholder Value Analysis Methods: This chapter analyzes the similarities and distinctions between different shareholder value methods. It identifies potential problematic issues and challenges associated with their implementation.
• Performance Evaluation and Compensation Systems: This chapter introduces agency theory and explains the conflicts that can arise between principals and agents. It examines the role of compensation systems in mitigating these conflicts and aligning managerial incentives with shareholder interests.
• E-Business: A Paradigm for Innovative Performance Driven Compensation Systems: This chapter explores how e-business can be leveraged to create innovative performance-driven compensation systems that address the challenges of the digital age.

Schlüsselwörter (Keywords)

The key concepts and focus areas of this study include shareholder value, agency theory, value-based management, performance measurement, compensation systems, stock options, e-business, and stakeholder relationships. The study aims to provide insights into the development of a comprehensive compensation system that aligns with shareholder interests and addresses the challenges posed by traditional accounting measures and agency problems.