The Study For Incentive Mechanism To Strengthen Corporate Governance

The case of Erron Co. of U.S.A. caused a lot of specialists and savants to discuss Corporate Governance about laws, Inter control, independent director, independent supervisor and corporation investors...etc. which are the preventative methods. It is the motive of this thesis to study and hope to prevent and reduce the chance of happening of the cases like Erron company.As for the fraud preventative methods, we may add the external audit system to clear out Certified Public Accountant's audit responsibility and to prevent fraudulence and lawbreaking activities. On the other hand, for the provoking methods, we may establish an appropriate incentive mechanism to provoke the managers to make a decision that focuses on all short, medium, and long-term targets. Now, all companies paid the salary, bonus, stock options (right), adjusting salary or position by evaluating achievements only with EPS. Therefore many managers only focus on short-term targets but ignore the medium and long-term targets. This kind of decision making will damage the future expanding. This thesis suggests the method of establishing short, medium and long-term incentive mechanism to connect to the measure of achievements. This suggestion can strengthen corporate governance.This thesis emphasizes that the appropriate use of short, medium and long-term incentive mechanism is able to induce managers to make good decisions for both today and future. As the results shown from some real-life data, bonus rate would affect EPS, ROA, ROE, and ROEI positively at the beginning, but negatively later on. So from a long-term perspective, bonus rate could be harmful to the company. However, if the company adds theretirement plan, other non-financial payment ...etc, to the bonus rate, the company will actually be positively affected in both short-term and long-term.As for the details about achievement measuring, such as the ways to connect the measuring to various kinds of short, medium, and long-term incentive mechanisms, would require further studies in the future. An example would be that the company pays 0.1% of sales to managers, even after the managers left their posts, to provoke their motives to study and to acquire patent of the sale product.