Abstract

http://ssrn.com/abstract=1910433
 
 

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The Design and Effects of a Long-Term Performance Plan


Byung Hyun Choi


LG Economic Research Institute

Simon Jonghwan Kim


Bocconi University - Department of Accounting

Kyung Tae Lee


School of Business, Yonsei University

Kenneth A. Merchant


University of Southern California - Leventhal School of Accounting

August 15, 2011

AAA 2012 Management Accounting Section (MAS) Meeting Paper

Abstract:     
We use data obtained from a large Korean conglomerate to explore the design and effects of a long-term performance plan (LTPP) and the short-term incentive plan (STIP) with which it is used. We found that the adoption of the LTTP did appear to lengthen managers’ decision making horizons, as the adoption of the plan was associated with subsequently larger capital, R&D and marketing investments. The payouts from the LTTP were significantly larger than those for the STIP. Most business units achieved their performance targets, but LTIP achievement levels were higher than those for the STIP because the financial targets were more achievable than those for the “key performance indicators” included in the STIP. Most of the contextual factors studied did not have significant effects on either the design or effects of the LTPP. However, larger business units tended to have higher performance and higher bonus payout multiples.

Number of Pages in PDF File: 31

Keywords: long-term incentives, bonuses, performance targets, performance evaluations, key performance indicators, uncertainty

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Date posted: August 16, 2011  

Suggested Citation

Choi, Byung Hyun and Kim, Simon Jonghwan and Lee, Kyung Tae and Merchant, Kenneth A., The Design and Effects of a Long-Term Performance Plan (August 15, 2011). AAA 2012 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: http://ssrn.com/abstract=1910433 or http://dx.doi.org/10.2139/ssrn.1910433

Contact Information

Byung Hyun Choi
LG Economic Research Institute ( email )
701 Exposition Blvd
Los Angeles, CA 90089
United States
714-515-0939 (Phone)
Jonghwan Kim (Contact Author)
Bocconi University - Department of Accounting ( email )
Via Roentgen 1
Milan, 20136
Italy
Kyung Tae Lee
School of Business, Yonsei University ( email )
Korea
821022050912 (Phone)
Kenneth A. Merchant
University of Southern California - Leventhal School of Accounting ( email )
Los Angeles, CA 90089-0441
United States
213-740-4842 (Phone)
213-747-2815 (Fax)
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