Industrial Electronics, Inc. Acctg Case
The current bonus system also only allows for bonuses to be distributed if there are profits more than 10% (after taxes) in …show more content…
Another negative aspect of this bonus structure is the loss of the company wide all-for-one bonus mentality. One division of the company (such as Division B) can have a great year and earn a lot of money while another division (such as Division E) can have a poor year and not earn as great a bonus.
Positively, this bonus structure takes into account the difference in division sizes, as it is based on forecasts and actual numbers. Therefore a small division can do well as compared to the budgeted numbers whereas with the previous structure, a small division would not have a very big impact at all on total bottom line of the entire company. This also relates to the fact that each division is rewarded for their own success. So if a division were to have an above-average year that division would be properly rewarded with a great bonus, even if the company as a whole didn't perform as admirably. This does lead to another potential pitfall of this proposed bonus structure interdependence of the divisions. Divisions have the