Abstract
This article describes both deductible and nondeductible bonus formulas, including a review of the economic profit type deductible plans. This is followed with a review of shareholder protection formulas. Following these formulas, desired objectives are set, the number of participants is identified and desired payouts drive creation of a fund formula which will either be a target or no-target plan. The plan is tested based on assumptions about performance factors. Finally, a decision is made as to whether or not there will be divisional funds in addition to a corporate formula and whether carryovers will be allowed.
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