Return on equity, or ROE, is a measure of a companys efficiency at generating profits using the shareholders stake of equity in the business according to one of this weeks readings (see DuPont Ratio, ROE, ROA and Growth). ROE is based on the book value of equity, yet many say that the book value is less important than the market value of equity. Should management bonuses be based on ROE? What are the pros and cons of such a compensation system? What are the advantages of a firm focusing on ROE, particularly with respect to its analysis using the DuPont equation? Does a focus on ROE promote firm growth, why or why not?

Please explain your answer with at at least 250words.