Below is a portion of a 2008 proxy form sent to shareholders of Miracle-J Corporation. It reveals that Miracle-J has a bonus plan for its three senior executives that allocates them 10% of before-tax profits. Also, under the Employee Stock Option Plan, share options up to 12% of capitalization may be granted to directors or employees.

Miracle-J Corp.
Executive and Management Compensation The Corporation's five executive officers were remunerated, in total, $440,000 by way of fees, salaries, and bonuses for the fiscal year ended May 31, 2008.
Included in the aforesaid sum was $280,000 paid to the three senior executive officers as full-time employees of the Corporation, pursuant to individual four-year Management Agreements made between the Corporation and those senior executive officers, effective June 1, 2006. Under the terms of the Agreements, the three senior executives are entitled to receive an aggregate bonus of 10% of before-tax profits earned by the company and their base salaries are to be increased 10% per year. For the 2008 fiscal year, the three senior executive officers waived their bonus entitlements to the extent that each received dividends on shares of the Corporation held by them which dividend was declared and paid for the fiscal year ended May 31, 2008.
It is to be noted that the Directors have adopted a form of Employee Stock Option Plan under which share options of up to 12% of the capitalization of the Corporation may be granted to Directors or employees. There are presently reserved, to that end, 930,000 common shares of the Corporation; but the Corporation has not granted any option to any Director or employees as of the date of this Information Circular.

Required

a. Explain the reason for the 10% bonus plan for senior executives. Are there any possible dysfunctional consequences of the bonus plan resulting from the apparent lack of a cap? Why is the bonus based on before-tax profits, rather than after-tax?

b. Explain reasons for the Employee Stock Option Plan in addition to the bonus plan for senior executives. Why does the Plan apparently apply to all employees?

c. To what extent would the bonus plan cause management to be concerned about accounting policies and changes in GAAP?