Compensation Design Of Eva-based Managers Of Firms

The separation of ownership rights from management rights in modern corporations has brought about the problem of corporate governance. The highly decentralized share ownership has made the control rights transferred from investors to managers. In the principal-agent relationships between shareholders and managers, due to asymmetric information and responsibility, incentive incompatibility as well as incomplete contracts, they have different objectives, and the agents may maximize their own benefits by "adverse selection" and "moral hazard" , thus the interests of shareholders as well as the companies are damaged. Therefore, a well-designed managers' performance evaluation and incentive system is of great significance for the maximization of enterprises' value and shareholders' wealth. Particularly in current China, on the one hand, with the market further opening to the outside world and the competition intensified, enterprise managers have been endowed with increasing responsibilities for management, and managers' decision-making and behavior patterns have greater impact on the survival and development of enterprises. On the other hand, there are many problems in current performance evaluation system, such as insufficiently reflecting value increment, ignoring the cost of equity capital, lacking close contact with compensation, restraining the effectiveness of incentives, and so on. Therefore, for the purpose of currently deepening enterprise reform and quickening economic development, it is a very important and urgent task to construct performance indicators as objective as possible without being easily manipulated by accounting, to fairly appraise managers' performances, to combine performance evaluation with compensation incentives, and to converge the benefits of both managers and shareholders.This dissertation, basing itself upon maximizing the value of a corporation, keeping to the four characteristics of an indicator (i.e., scientificity, effectiveness, comprehensiveness, and practicability), selects EVA which has been popular abroad since 1990s, to design an incentive compensation system for managers. Firstly, the paper sums up the research results of EVA's effectiveness and goal congruence, laying a good foundation for the EVA-based compensation design. EVA's effectiveness can be divided into two aspects, i.e., evaluation effectiveness and incentive effectiveness. In the aspect of evaluation effectiveness, EVA is more correlated with corporate value and has more information content than traditional accounting measures, so it can be used to evaluate managers'...