An Analytical Study on the Design of Accounting-Based Incentive Mechanisms and Their Economic Impact on Firm Performance

Shaozu Ling

doi:10.54097/cvya6m18

Authors

Shaozu Ling

DOI:

https://doi.org/10.54097/cvya6m18

Keywords:

Accounting-based incentives, agency theory, performance metrics, long-term equity, SME implementation.

Abstract

This paper analyzes how accounting-based incentive mechanisms shape firm performance and governance. A compact “incentives – effort – performance – payoffs” framework is proposed, integrating agency-contracting logic with behavioral frictions—line-of-sight, gaming risk, and forecastability. Methods combine a structured review, a conceptual model of metric selection and payout curves, and two cross-industry cases: GE’s EVA-centered design and Apple’s multi-year equity with relative TSR hurdles. Evidence highlights three levers that dominate outcomes: metric parsimony, auditability and transparency, and the measurement horizon. Excess complexity weakens incentives by obscuring how actions translate into pay, yet macro conditions, competition, and portfolio shift also matter; complexity is a primary, not exclusive, driver. For SMEs the paper offers a practical path: pick two or three strategy-linked metrics; define thresholds, targets, and caps; use light monitoring and plain-language communication; pilot before scaling; and keep discretion narrow. The contribution is to reconcile theory and practice, clarify boundary conditions (volatility, discretion, asymmetry), and provide actionable heuristics for robust, affordable incentive design.

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