Refer to the Action feature, “Channel Stuffing,” on page 19.

Suppose that performance bonuses based on revenues were eliminated and this behavior ceases. Would you favor eliminating performance-based bonuses for managers? Why or why not?

Data from in page 19

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Channel Stuffing Channel stuffing is the practice of offering incentives to cus- tomers to buy more product than needed. It is done to inflate revenues in one period (year or quarter) although it will lead to lower revenues in later periods as customers sell their excess inventory. Often channel stuffing occurs when man- agers are trying to meet goals, especially to earn bonuses. For example, in early 2004. The Record of Bergen County, New Jersey, reported. "A federal grand jury in Newark is in- vestigating accounting practices at the Bristol-Myers Squibb Co., which is under investigation by government regulators in both Washington and New Jersey In Action "The inventory manipulation, known as 'channel stuff- ing, is not illegal, but some industry observers have called the level at Bristol-Myers excessive. It occurred during a period when the company was trying to keep up with rivals posting double-digit growth in profits. Some industry experts have questioned whether key Bristol-Myers managers bene- fited financially through bigger bonuses based on company sales levels." Source: The Record, "Grand Jury Probing Bristol; Accounting under Scrutiny," February 19, 2004: B1.