Market-based bonus schemes may be considered more appropriate from a PAT perspective in industries in which:

Question

Quizplus · Accepted Answer

Market-based bonus schemes are more appropriate in industries where successful strategies may not be reflected in accounting profits for a number of periods. In such industries, the market value of the company and its stock price may better reflect the value added by management decisions, making market-based incentive schemes more appropriate. Option B is incorrect because the price/earnings ratio is not necessarily related to the appropriateness of market-based bonus schemes. Option C is incorrect because while profit manipulation is a concern, it is not a defining factor in determining the appropriateness of market-based bonus schemes. Option D is incorrect because capital investment is always an important strategic decision that may impact the market value of the company.

Market-Based Bonus Schemes May Be Considered More Appropriate from a PAT