Aligning Incentive Contracts and Decision Rights

Aligning Incentive Contracts and Decision Rights Order Instructions: Aligning Incentive Contracts, Decision Rights Assignment, and Performance Evaluation

Aligning Incentive Contracts and Decision Rights
Aligning Incentive Contracts and Decision Rights

Ultimately, any economic theory is an incomplete explanation and prediction of what occurs in the real world, primarily because of the broad nature of theoretical models. This week you will explore the joint predictions and explanations of transaction cost economic and principal-agent theories, as well as the limits of such theories, through a discussion of optimal decision rights assignment, incentive contracts, and performance evaluation system design.

You will use this final course Discussion to reflect on the relationships and the connections among the many economic and organizational factors that shape performance evaluation systems, corporate governance practices, and managerial accounting systems and methods. You will share your insights into how the three dimensions of management control systems interact, and the implications of such interactions for designing managerial accounting systems and methods that fulfill organizational objectives related to corporate governance and performance evaluation.

By Day 5 of Week 8, respond to both questions listed below:
•What insights have you gained from your learning in this seminar, as they pertain to the alignment of decision rights Assignment, incentive contracts, and performance evaluation systems to organizational design, plans, and control systems?

•How do the concepts of pricing/contribution margin analysis, cost allocation, activity-based costing, throughput accounting, key performance indicators, and balanced scorecard methods apply to corporate governance, performance evaluation, and managerial accounting system design?

Aligning Incentive Contracts and Decision Rights Sample Answer

For efficiency in the provision of incentives, all the three systems involved in incentive contracts must be balanced against each other. Rewards, measurement of performance and allocation of decision rights should all be integrated and have a common goal (Anna 2013). Since the authority to decide on the components is hierarchical, adjustment of centralized systems should be adjusted to allow for decentralization. Decision right assignments, incentive contracts, and performance evaluation systems are all aligned to managerial decisions. They require proper design, planning, and control for effective performance. Decentralization of decision rights, incentive contracts, and performance evaluation systems enhances effective design and control. When the roles get assigned to specific individuals or departments, thorough information is obtained with proper expertise in the execution of the tasks. When the components are integrated and have the balance they all, lead to the attainment of organizational goals in unison.

Balance score card, contribution margin analysis, cost allocation and activity-based costing all form components of management accounting dispensation. Balance has to exist in all the different departmental tasks for proper corporate governance. When management accountants apply the different accounting methods efficiently, decisions made regarding the overall performance of the organization are always effective (Bastian 2015). It requires proper systems in place to allow for overall corporate governance. Financial management is the core component used in performance evaluation. Expertise knowledge on the different types of financial controls and systems assists in performance evaluation and management that provide for effective corporate governance.

The available incentive contracts must serve many purposes and if designed to better performance acts against other organizational objectives (Susan and Robert 2013). Available means to affect a certain sort of behavior always affect the incentives governing choices made. It, therefore, means that the design of performance contracts, performance evaluation systems, and decision rights must be interlinked to have a common goal and for balance within the organizational planning and control structure.

Aligning Incentive Contracts and Decision Rights References

Anna Reichmann (2013). Decentralized task assignment and centralized roles. Retrieved from

Rohlfing Bastian (2015). Optimal allocation of decision making authority. Retrieved from…/08_Delegated_Job_Design,%20A..

Susan and Roberts (2013). Organizational design: Decision rights and incentive contracts. Retrieved from

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