Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 34

Bonus Compensation Base and Pool There are three components to a bonus plan: the base of the bonus compensation (earnings, revenues), the bonus pool (firmwide or unit-based), and the payment options (cash, stock options). It is common in many industries, including the financial services industry, to use a firmwide pool and revenue as the base for bonus compensation.
Required
1. What are some alternative bases for compensation pools, in addition to revenue
2. What effect do you expect the use of revenues, rather than some other base, to have on both the motivation of managers and the total bonuses paid to managers Comment on the effectiveness of the revenue base relative to other options for the bonus compensation base.
3. Explain the likely motivational effects of the use of the firmwide bonus plan for firms in the financial services industry.
4. Do you consider the firmwide revenue plan for bonus compensation to be a fair method for determining bonuses Why or why not