Bonus plans are pretty ubiquitous and many executive bonus structures don't use a bottom-line net income to gauge performance but instead they use figures higher up on the income statement like EBITDA (earnings before interest, taxes, depreciation, and amorization).
Trying bonus-related performance to non-bottom-line financials largely help address issues related to timing. Timing mismatch causes the boards to disregard costs of certain investments.
Moreover, CEOs hired from outside businesses are likely to be shielded by the board through bonus-plan structures.
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When it comes to executive compenation, including bonus plans, there is no one-size-fits-all solution.
There's research done on how cash bonuses work. Bonus plans have a significat impact on the executive's incentives to boost corporate performance.
The research found that bonus plans ultimately facilitates better cooperation across top management teams because it holds sen...
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