"The fundamental goal of all business is to maximize shareholder value." This statement has become commonplace not only in corporate America, but it is also the imperative statement of business around the world. A failure to seek to maximize shareholder value results in pressure from the board of directors and activist shareholders. The takeover movement of the latter half of the 1980s provided another powerful incentive for managers to focus on creating value. This is grounded on the fact that the only compelling takeover defense is to deliver superior shareholder value.
Given the globalization of capital markets and their diminishing boundaries, economic systems will slowly run out of capital, if they are unable to create shareholder wealth and thereby attract investors. If economic systems are unable to provide superior or at least satisfying returns they will fall further and further behind in global competition and will lose employment opportunities. Thus, a value-based system grows in importance as capital becomes more mobile.
Although shareholder value metrics and value-based management are widely known they are far from being universally applied. Years of restructuring and employee layoffs frequently attributed to shareholder value considerations coupled with self-interested management and shortsighted focus on current stock price has promoted frustration and uncertainty. Thus, it is critical to fully understand the shareholder value approach and its variants. Additionally, it is vital for the shareholder value approach that the objectives of the mangers and the company′s shareholders are aligned and focused on delivering superior shareholder value. The relationship between manager and stockholder can best be examined by the agency theory that studies the contract between agents (e.g. managers) and principals (e.g. stockholders).3 An overview of a holistic shareholder value and agency based compensation system is the topic of this paper.
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.
- Arbeit zitieren
- Arne Wolter (Autor:in), 2000, A Shareholder Value and Agency Theory Based Compensation System, München, GRIN Verlag, https://www.hausarbeiten.de/document/1665
