Adopting Residual Income-Based Performance Measures: Do You Get What You Pay for?
Journal of Accounting & Economics, Vol 24, No 3, December 1997
Posted: 27 Jun 1998
Abstract
It has been argued that compensation plans based on a residual income performance measure help mitigate dysfunctional behavior associated with plans based on traditional accounting measures. This paper develops and empirically tests hypothesized managerial actions associated with residual income-based performance measure incentives. A sample of forty firms that began using a residual income performance measure in their compensation plans is compared to a matched-pairs control sample of firms that continue to use traditional accounting earnings-based incentives. The results generally support the hypothesized managerial actions. Overall, I find that "you get what you measure and reward."
JEL Classification: M41, G14
Suggested Citation: Suggested Citation