FIGURE 4

Environmentally "enlightened" cost accounting system.

to restructure the incentive compensation system to encourage the ultimate objectives of waste minimization and elimination.

Numerous possibilities exist for accomplishing this goal. Two such schemes would be (1) gradual phasing in of the new system over a period of years, and (2) basing incentive compensation on the direct cost structure for manager A. In addition, incentive compensation might include the direct cost structure plus a "bonus" for reduction of Toxic WasteB, for manager B, with a target elimination horizon of, for example, five years for the chemical, over which time the full disposal costs will gradually be entered into the direct cost structure.

Modification of traditional accounting systems will require establishing hierarchies of all input and environmental costs based on difficulty of achievement, developing taxonomies of product-costing strategies for capturing and assigning all such costs to a responsible manager, and setting target horizons for reduction of environmental effluents. Nearly all the information required, including clean technology alternatives, will be provided by engineers. The system will require enormous collaborative efforts among engineers, accountants, and managers and potentially the development of new material measuring and tracking technologies as well. The potential payoff to society as well as the firm, however, is incalculable.



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