conditions demonstrate the fact that managers may be rewarded or penalized for

Conditions demonstrate the fact that managers may be

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conditions demonstrate the fact that managers may be rewarded or penalized for results that are not directly caused by their decisions and efforts. Furthermore Negative EVA results will cause good managers to resign and make the company unattractive to potential talented employees. As a result, it is necessary to modify the current compensation bonus plan. Recommendation: The first step in our recommendation requires the company to modify the current bonus payout methodology. Under the current method, managers are entitled to the full amount of target bonus plus 50% of any surplus amount due to results in excess of the EVA goal to the bank balance. Since Mr. Vedrine aims to focus on long-term incentives for talented employees, it makes more sense to keep a larger reserve in the bonus bank. Therefore instead of 50%, we recommend managers to withdraw only 20% remaining balance. This supports the long-term incentive plan because managers will remain to have sufficient funds in their bonus bank for future rainy years.
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For example, if the manager withdraws a full 50% remaining balance from
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