Part B) Compensation Process Outline

Couqs Mart calculates and pays bonus compensations for company executives.

Couqs Mart pays a yearly bonus at the end of each year to top three executives (CEO, CFO, and CTO). For the past 10 years, the basic structure of the bonus compensation scheme has remained the same; however, the percentage of the bonus compensation (thus, the compensation amount) changes from year to year. After the financial performance (i.e., net income) of a year is determined, Board of Directors will decide on the percentage rate and a give final approval for bonus compensation.

The bonus compensation scheme is a tiered system in which executives bonus compensation depends on the tier in which the companys financial performance falls. The bonus structure incentivizes executives by providing increasingly higher bonuses for achieving improvement over the prior year's performance. The following is an example of the basic bonus structure for the CEO:

Tier 1: The bonus is equal to 20% of the CEO's annual salary if the companys net income increases from the prior year by between 1.00% and 1.99%.

Tier 2: The bonus is equal to 25% of the CEO's annual salary if the company's net income increases from the prior year by between 2.00% and 3.99%.

Tier 3: The bonus is equal to 50% of the CEQ's annual salary if the company's net income increases from the prior year by between 4.00% and 4.99%

Tier 4: The bonus is equal to 50% of the CEO's annual salary PLUS 0.1% of net income if the companys Gross Profit increases from the prior year by at least 5%.

Once the Board of Director decides on a percentage rate and gives out an approval, the Assistant Controller takes over and calculates executives compensation and bonus amounts. The Assistant Controller maintains and updates payroll records of each executive throughout the year using spreadsheet. At the end of the year, Assistant Controller obtains the compensation reports from the Board of Directors. The report shows the approved bonus compensation amount for each three executives. Using the report, Assistant Controller updates the total amount of bonus compensation to the existing compensation amount accrued throughout the year.

After done, Assistant Controller brings the spreadsheet to the Payroll Department Head on a USB drive (the file is not emailed due to its sensitive/confidential nature). If Payroll Department Head approves the payroll records provided, the head will, if necessary, further modify the spreadsheet to update the bonus amount and given an approval. When done, Payroll Department Head saves the file and returns it to Assistant Controller on a USB drive.

Assistant Controller then provides the spreadsheet to Controller for review. Assistant Controller also gives Controller the supporting documentation for the spreadsheet (i.e. Compensation Committee approved/signed report showing bonus, the calculation formula). If Controller finds any errors in the report, Controller requires Assistant Controller to fix the problems and sign the spreadsheet. If there is no error, Controller signs the spreadsheet right away.

Next, Assistant Controller downloads year-end General Ledger and calculates changes to a new gross profit and net income values. This change reflects changes due to the bonus compensation amount.

The bottom of the spreadsheet shows the journal entry that should be made based on the spreadsheet calculations. For example:

Dr. Bonus Expense XX, XXX

Cr. Bonus Payable BXX XXX

Assistant Controller prints the required journal entry and brings the print-out to the Staff Accountant who enters the journal entry into the General Ledger system. Then, Assistant Controller gives Payroll Department Head the spreadsheet so that the Head can prepare to pay the executives in the next payment cycle.

1. Create a flowchart for year-end bonus process of Couqs Mart. (I ONLY NEED THIS QUESTION ANSWERED. PLEZSE THX