Finance and Credit

Application of the method of economic value added for motivation of top managers of corporation

Vol. 24, Iss. 1, JANUARY 2018

Received: 10 November 2017

Received in revised form: 24 November 2017

Accepted: 8 December 2017

Available online: 29 January 2018

Subject Heading: INVESTING

JEL Classification: D82, G34, M12

Pages: 52–64

Yashin S.N. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

ORCID id: 0000-0002-7182-2808

Koshelev E.V. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

ORCID id: 0000-0001-5290-7913

Kuptsov A.V. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

ORCID id: not available

Importance This paper considers if it is possible to apply the method of economic value added for constructive motivation of top-management of corporations.
Objectives The paper aims to adjust the known method of economic value added so that it could be used for successful motivation of the company's top managers.
Methods The proposed methodology is to apply the actual rate of modified economic value added instead of the usual economic value added. This allows the priorities of top managers and owners (shareholders) to be aligned with regard to which investment project from the set of available alternatives should be implemented.
Results Predictable modified economic value added, as well as net present value, does not provide a reliable guideline for rational motivation of the top manager for the long-term goals of the company. This problem can be solved by placing top-managers' remuneration in dependence on the actually obtained modified economic value added by years as a result of the implementation of a specific project. In this case, top managers of the company become structurally motivated to increase the value of the company's business, as required by the shareholders.
Conclusions and Relevance The results of the research can be useful to both financial analysts and corporate owners. They will help to focus the work of top managers on achieving long-term strategic goals of companies.

Keywords: top managers, economic value added


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