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Incentive Contracts and Managerial Accounting

Head: Incentive Contracts and Managerial Accounting

�Compare and contrast incentive contract design in two different countries, either of one multinational

enterprise, or two different ones.

�How should managerial accounting systems of multinational enterprises be adapted in consideration of

cross-border differences in management incentive contracts?

Incentive Contracts and Managerial Accounting

Different institutional multinational frameworks generate varying levels of
satisfaction for managerial incentive contracts. In some cases, a motivator in one country is a
non-motivator in another country. Diminishing marginal utility is generated over rewards. It is


Incentive Contracts and Managerial Accounting
therefore not advisable for multinationals to transfer incentive designs from one country to the
other without having enough information regarding the relative values of preference, satisfaction,
and organizational framework. Employees in different countries prefer different management
styles, and it is for the multinationals to adopt management accounting systems that fit the
demands of specific countries.

German multinational incentive framework provides managers with

comparatively high paid vacation days such that the employees in U.S expressed their interest in
having the same incentive as their German counterparts. US multinationals have a tendency to
homogenization concerning the best expertise skills. The trend of compensation managers
according to the skill set works against the multinationals goal of profit maximization (Edward
2011). Also, German multinationals do not prefer mentor management style while US
multinationals have a preference for mentor management style.

The increasing globalization of multinationals creates a greater need to
understand how and whether to adapt management systems that fit salient features of the local
country. Some of the management practices are universal, and managers are supposed to
understand them. Mostly, management systems are adopted as per local culture and situation.
Social, political and economical factors that vary across countries shape measurement of
incentive management contracts and their factors Kennedy (2011). These factors should be
considered in adapting management accounting systems. Culture has an effect on employee
understanding of their organization purpose, the way that they should be treated, and their job
description. Management accounting systems that are adopted should be consistent with
employee values so as to be effective.


Incentive Contracts and Managerial Accounting



Incentive Contracts and Managerial Accounting
Edward Lust (2011). Country compatible incentive design.

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