In a recently published paper titled “Accrual Accounting in Performance Measurement and the Separation of Ownership and Control,” Moritz Hiemann from Bocconi’s Department of Accounting emphasizes the crucial role of an effective compensation method for managers during the sale of a business. This aspect plays a significant part in facilitating a smooth ownership transition and ensuring the overall health of the transaction.
Hiemann’s research, featured in the November 2023 edition of The Accounting Review, sheds light on the importance of designing a compensation system that promotes efficiency and aligns the interests of both managers and owners. By addressing the issue of separation between ownership and control, this study highlights how proper compensation mechanisms can contribute to a successful ownership transition.
When a firm is being sold, it becomes necessary to establish compensation structures that motivate managers to act in the best interest of the business. These structures should incentivize managers to maintain high levels of performance, even when their long-term objectives may not align perfectly with those of the new owners. Furthermore, a well-designed compensation method can help mitigate conflicts of interest between managers and owners, fostering a harmonious transition process.
The paper focuses on the utilization of accrual accounting in performance measurement as a means to achieve these goals. Accrual accounting involves recognizing economic events when they occur, rather than when cash is received or paid. By employing this approach, managers are encouraged to make decisions that enhance the long-term value of the business, as opposed to merely focusing on short-term financial gains. This fosters a more sustainable and comprehensive view of managerial performance and aligns it with the interests of future owners.
Through his research, Hiemann underscores the need for a careful evaluation of compensation methods during ownership transitions. It is crucial to strike a balance between providing sufficient incentives for managers to perform optimally while ensuring that their actions do not compromise the overall objectives of the business. This delicate equilibrium can be achieved through the implementation of a well-tailored compensation system that accounts for the complexities and unique characteristics of the business being sold.
In conclusion, the research by Moritz Hiemann emphasizes the significance of designing an efficient compensation method for managers during the sale of a business. By addressing the issue of separation between ownership and control, and leveraging accrual accounting in performance measurement, this study underscores how proper compensation structures contribute to a smooth ownership transition. The findings shed light on the importance of aligning the interests of managers and owners while ensuring long-term value creation and harmonious decision-making throughout the transaction process.
