Answer Happy

c) Schipper (1989, p. 91) states that not including earnings in managerial compensation contracts "exclude[s] a potentially very informative signal about 4 Please turn over managerial productivity, and [..] ignores the possibility that earnings management has the essentially beneficial role of providing a means for managers to reveal their private information" [Schipper, K. (1989). Commentary on earnings management, Accounting Horizons 3(4): 91-102]. i) Explain Schipper's statement. You can, but do not have to, refer to arguments made in Schipper (1989). ii) Propose a mix of accounting measures that could be used in the compensation contract of the CEO and that might alleviate the concerns of the shareholders. You should identify and discuss at least three different accounting measures. (23 marks)