• Linkages between size and pay since big companies evidently have a higher pay, most executive strive for “bigness” irrespective of whether it leaders to value creation or not.
• Emphasis on short term performance. Usually short term performance such as increase in sales or growth in earnings is given considerable weight which leads to myopic orientation and distract executives from value creation.
• Reliance on accounting measures/ creative accounting
• Accounting measures such as earnings and return on investments on which performance of executive is usually gauged are often poor proxies for value creation.
• Required current recognition of income
• Although the income tax liability on the growth realized in the cash value is deferred, the executive is required to recognize current income equal to the bonuses premium payment each year.
• Loss of control over the life insurance policy and its values since the executive is the policy and its values. Since the executive is the policy owner, the employer’s control is limited to the payment
• Inability to provide for employment loss recovery.
• Employer cost recovery is not a feature of executive bonus plans.
Kavungya answered the question on March 30, 2022 at 07:00
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Additional information:
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2. Last December the company declared an interim dividend of Sh.2.50 and has now declared
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Additional Information
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Date posted: December 15, 2021. Answers (1)