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Changing the Bonus Structure?

cost-savings, dollars, moneyThe New York Times reported recently that some companies, like Xerox, are changing the bonus structure to eliminate revenue growth as one of the criteria.

While the point is that growth is not the only important criteria … and some companies are attempting to substitute cash flow as a criterion … the value of the revenue measure is also that it is the easiest to measure and the least susceptible to manipulation. How many stories have we all heard, particularly in the context of “earnouts” in acquisition transactions, that the earnings were just “never there” when it came time to pay the earnout?

Other companies are seeking to use working capital as a criterion. The spirit of managing cash flow, earnings and the use of capital is right, but there’s such a possibility of gaming the system, that I wonder if these alternatives are realistically achievable?


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