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Value–Based Management with Corporate Social Responsibility$
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John D. Martin, J. William Petty, and James S. Wallace

Print publication date: 2009

Print ISBN-13: 9780195340389

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780195340389.001.0001

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Incentive Compensation: What You Measure and Reward Is What Gets Done

Incentive Compensation: What You Measure and Reward Is What Gets Done

(p.133) Chapter 8 Incentive Compensation: What You Measure and Reward Is What Gets Done
Value–Based Management with Corporate Social Responsibility

John D. Martin

J. William Petty

James S. Wallace

Oxford University Press

This chapter presents a fundamental component of every firm's internal control system, its compensation program. The basic paradigm espoused by the proponents of VBM is that what a firm measures and rewards will get done. Consequently, the compensation program must measure employees’ activities that contribute toward wealth creation and reward those efforts. In essence, the compensation plan should pay employees to think and act like owners. Both the level of compensation and its form and composition are discussed. Many observed problems and potential remedies are presented. One characteristic that firms must be aware of is the public's perception that executive compensation has become unacceptably excessive. A complete VsBM program must consider the political implications of its behavior as these perceptions can and do effect a firm's reputation and ultimately its wealth-creating ability. One mechanism for addressing these perceptions is to consider fairness criteria when designing a compensation program.

Keywords:   incentive compensation, pay-for-performance, variable pay, bonus bank, executive compensation, value(s)-based management, value-based management, stock options, equity, pay at risk, bonus, economic value added, managerial horizons, Whole Foods, Inc

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