Quota bonus plan The Board of Directors of Xcellerator Company plans to implement bonus compensation plans for the small company’s employees, who had been compensated by salary only. The proposed plan for each member of the four-person ‘C-suite’ executive team has the following parameters based on annual operating profit reported to shareholders:

Required:
1. Prepare a graph of this proposed bonus plan, and label it similarly to Figure 12.8.
2. The CEO’s responsibilities include major sales contracts. Towards the end of the fiscal year, the company’s operating profit stood at €90 000. At this time, the CEO was negotiating a sale with a new customer that could earn an operating profit of €25000. Discuss the CEO’s incentives whether to ask the CFO to recognise the sales revenue as earned during the current fiscal year.
3. Assume that the bonus plan has been in place for several years, and the end of a fiscal year approaches, Current operating profit stands at €485 000. The CEO has completed the negotiation of a sale with an existing customer for established products that are in stock or are readily obtainable. Based on similar past sales, the expected operating profit from this sale is €60 000. Should the CEO defer completion of the sale to the next fiscal year? Why, or why not?
4. Discuss the strengths and weaknesses of extending a similar bonus plan to all employees of Xcellerator Company.

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Bonus rate Operating profit Bonus compensation 0% 0 10000.0 0% 100000 10000.0 10% 100001 10000.1 10% 500000 50000.0 0% 500001 50000.0 0% 600000 50000.0