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Chapter Nineteen. Management Compensation, Business Analysis, and Business Valuation. Learning Objectives. Identify and explain the types of management compensation Identify the strategic role of management compensation and the different types of compensation used in practice
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Life Cycle Phase Salary Bonus Benefits
Introduction High Low Low
Growth Low High Competitive
Maturity Competitive Competitive Competitive
Decline High Low Competitive
... are consistent with the three objectives of management control presented in Chapter 17:
Bonus compensation pools are either unit-based or firm-wide:
The four most common payment options are as follows:
EasyKleen has three CSFs:
1) Return on total assets
2) Number of quality defects
3) Number of training hours
for plant workers
Ratio analysis uses financial statement data to evaluate performance, often in the areas of liquidity and profitability:
Key profitability ratios are:
EVA® for EasyKleen is determined as follows, with invested capital defined as total assets less current liabilities
Four approaches to measuring the value of shareholders’ equity:
Four steps in the application of the DCF method:
Which of the following is NOT an example of a benefit?
A) Free travel arrangements.
B) A bonus based on achieving performance goals.
C) Life insurance for family members.
D) Tickets to entertainment events.
Of the three basic forms of management compensation (salary, bonus, perks), the fastest growing part of the total compensation is:
D) salary and bonus.
E) They are all growing at the same rate.
The three most common bases of compensation are ________, strategic performance measures, or the balanced scorecard.
A) Allocated costs.
C) Stock price.
D) Turnover ratio.
Which of the following bonus payment options tends to be short-term focused?
A) Current bonus
B) Deferred bonus
C) Stock options
D) Performance shares
The ideal compensation plan would make all company contributions to the plan immediately tax-deductible and all tax consequences for managers:
C) deferred or avoidable.
D) limited, but current.
E) limited, but pre-paid.
Which of the following compensation plans is never taxed to the manager?
B) Stock options - nonqualified plan
C) Stock options - qualified plan
D) Certain retirement plans
E) Other perks
"Market value" is an objective measure that clearly shows what:
A) the firm's accountant determines as the firm's worth to be.
B) investors think the firm is worth.
C) stock analysts calculate as the firm's worth.
D) is the sales value of the firm.
E) is the liquidation value of the firm.
Which of the following is NOT a key measure of liquidity?
A) Current ratio.
B) Cash flow ratio.
C) Inventory turnover.
D) Gross margin percent.
Which of the following is NOT a method for valuing a firm?
A) Balanced scorecard method
B) Market value method
C) Book value method
D) The discounted cash flow method
E) Multiples based method