Enterprise Manager's Inspiriting Compensation Plan Based On EVA

Corporation's final aim is to realize the maximum of the corporation's value,namely the maximum of the stockholder's value in Modern Corporation. But theproblem of principal-agent is appearing because of imperfection of corporationcontracts and dissymmetry of information between corporations and managers. Theappearance of Human Capital Theory offers a theoretic base answering for rewardfor managers too. So, the problem of inspiriting managers, especially compensationpromoting, becomes the core one of corporation. Only the inspiriting compensation has a close relation with the performance ofcorporation and the effort of managers in managers'total compensation. Thus, thedesignment of managers'inspiriting compensation plan becomes the focus to resolvethe problem of principal-agent and give the reward to managers'investment inHuman Capital. The precondition to design an effective managers'inspiritingcompensation plan is to select appropriate performance indexes. Traditional fiscalperformance indexes cannot reflect truly the value that managers create forcorporations and have the shortcomings, such as imperfection of measuring cost,information distortion, and surplus management. Due to having considered the costof all capitals and having a good reflect about stockholder's value more accurately,the performance index of EVA is a better one to inspirit managers than traditionalfiscal performance indexes. The manager's inspiriting compensation plan based onEVA can improve the level of inspiriting effect. The author brought forward the concept of inspiriting compensation afteranalyzing the structure of managers'total compensation. Beyond that, the author alsoanalyzed three theories about managers'inspiriting compensation plan. Then theauthor reviewed the development course and shortages about managers'inspiritingcompensation plans in China. In chapter 3, the author explained in detail the EVAindex and managers'inspiriting compensation plan based on EVA, and analyzed theadvantages that contrast to traditional fiscal indexes and inspiriting compensationplan. In chapter 4, the author discussed some matters about implementing managers'inspiriting compensation plan based on EVA, such as main objectives and principles,operating steps, and calculating methods. The result of this research is verified byAmoi Electronics Co. LTD in chapter 5. At last, the author discussed the conditionsand listed some suggestions which must need to put the managers'inspiritingcompensation plan based on EVA in practice effectively in China. Thus, it can have agood effect on inspiriting corporation managers to improve the management andenhance the power of competition of our corporations in the world.