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monstrating that RI-based incentive compensation plans are effective in altering management decisions. For each of the four research questions listed below, forty firms that adopted residual income-based compensation plans were compared with forty matched-pair control firms that continued to use traditional compensation schemes. Results are summarized in Figure 5, where “% relative change” indicates average percentage changes in selected actions of firms that adopt residual income-based incentives relative to the non-adopters. [Insert Figure 5 about here]

In settings where the benefits of management actions are delayed. Consider the Boeing Company, where the effects of management actions to land a large order for new aircraft may not appear in sales, earnings or EVA for as long as five or ten years. For this reason, Boeing employs one of a class of forward-looking metrics based on projected cash flows. Other industries where the effects of current actions can be seriously delayed include biotechnology, internet, software development, and wireless communications. Stern Stewart has proposed a solution to this problem in an article called “EVA For The Oil and Gas Industry,” Journal of Applied Corporate Finance, Vol. 11, No. 3. (Fall 1998), 109-131. 24 James S. Wallace, "Adopting Residual-Income-Based Compensation Plans: Do You Get What You Pay For?," Journal of Accounting & Economics, Vol. 24, No. 3 (December 1997), 275-300.

Operating decisions that use invested capital more efficiently will boost NOPAT and ROA, and other things equal, increase RI. For this reason, we would expect actions consistent with residual income incentives to increase asset turnover measured by sales over total assets:25 Q4: Does asset turnover increase for firms adopting residual income-based compensation plans (relative to non-adopters)? As shown in Figure 5, total asset turnover increased by an average of 14 percent for firms adopting residual income relative to control firms in the period subsequent to adoption. This increase is statistically significant at conventional levels. Investing decisions also boost RI to the extent they re-allocate capital away from activities that earn less than their capital costs and toward activities that earn more. If the adoption of a RI-based compensation plan simultaneously introduces greater awareness of the higher hurdle rate for investments (now explicit in the full weighted average cost of capital, WACC), other things equal we should observe increased asset divestitures and decreased new investments: Q5: Do asset dispositions increase and asset acquisitions decrease for firms adopting residual income-based compensation plans (relative to non-adopters)? As depicted in Figure 5, asset dispositions increased 100 percent and new investment decreased 21 percent after adoption (compared to pre-adoption levels) for the residual-income firms relative to the control firms.

For example, after adopting EVA, a large west coast manufacturing firm realized that, while its purchasing group had incentives to cut costs (and thus the input price of component parts), they had little incentive to control the level of parts inventory. Senior management quickly decided that it was more effective to cut inventory (and thus Capital) than to minimize price. As a consequence they moved a large amount of their purchase本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。