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

See all articles by James S. Wallace

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management

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

Wallace, James S., Adopting Residual Income-Based Performance Measures: Do You Get What You Pay for?. Journal of Accounting & Economics, Vol 24, No 3, December 1997, Available at SSRN: https://ssrn.com/abstract=102391

James S. Wallace (Contact Author)

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States
(909) 607-6063 (Phone)

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