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The Research about Salary Incentive Mechanism of Enterprise Manager Based on Real Options Theory

Author: ShenDaYan
Tutor: XiongWei
School: Wuhan University of Technology
Course: Systems Engineering
Keywords: salary incentive mechanism principle-agent theory real option theory information asymmetry
CLC: F272
Type: Master's thesis
Year: 2009
Downloads: 131
Quote: 0
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Abstract


Senior management personnel is the first resources of enterprise. Establishing business manager’s salary incentive mechanism is an issue that is urgently needed to solve for dealing with the problem of corporate human resources loss,improving work efficiency and quality of decision-makers. In the past,under the shackles of the planned economy, senior management personnel of enterprises in China didn’t bring their talent into play,because they can get the pay only if they can complete the scheduled task. It is extreme lack of innovatoion and challenge. The development of the reform and opening promoted the market economy, especially after the accession to WTO, enterprises of China have developed rapidly and those who can afford the pay system show its superiority day by day.Now,if you do not give serious consideration to business personnel’s status and role,do not changes the existing pay adjustment and distributiong system,your company will soon or already facing a serious "brain drain" problem.Only emphasizing the importance of the talent is useless,the key is to change the concept of reform,the existing reward system and incentives for enterprises in the process of how to handle the business relationship between the principal and agent, how to avoid moral hazard of an gant,how to the establish rational and effective incentive mechanism for clients to achieve a win-win principal and agent, so that the enterprise can develope healthily and stablely. In modem enterprise management,the opertators often face real options investment issues,such as corportate mergers and acquisitions,mineral resources development,product research and development,project investment evaluation. The decisions made by the opertators impact on the project’s success,so the operator is essential to implement an effective incentive mechanism in the real option investment projects.From this standpoint, This article analysis the characteristics of modern enterprises, the need for incentive compensation and other issues by learning and summarying domestic and foreign experts and scholars research. And from China’s actual conditions,China’s enterprise managers’ incentive pay status is analysised. The principal-agent theory and its importance in formulating the incentive contracts is explained. In this article,by combining principle-agent theory with real option theory synthetically,through qualitative and quantitative research,optimal incentive mechanism model is established under the assumption that two asymmetric parameters’ distribution function is consecutive distribution. A model is established to get the optimal sharecropping contract. The principal innovation of this article are: in the case that the business owners and managers are unknown about the project investment manager’s operating costs and the level of effort of these two asymmetric information, the principal-agent theory and the model is applied to real options problems, in an asymmetric information distribution for the continuous conditions,the problem of how to formulate the optimal compensation contract managers incentives to arrive at an improved salary contracts model by business managers is analysised; by using the model of salary contracts, sharecropping contract and the basic salary + commission system of remuneration contract are namely established. By analyzing and comparing the two contracts, two kinds of contracts’ features and application conditions areexplained.

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CLC: > Economic > Economic planning and management > Enterprise economy > Enterprise planning and management decision - making
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