Question

A brief description of Krispy Kreme’s annual cash bonus plan for top executives follows.


The disclosure further indicates that eligible recipients would receive 70%, 100%, or 140% of the portion of the target bonus for performance attributable to each performance metric for performance at the threshold, target, and maximum levels, respectively. The bonus for performance that falls between two of those levels would be prorated.

Required:
1. One way Krispy Kreme executives can achieve the revenue target is to open new stores as fast as possible. Explain why this might alarm shareholders.
2. Why might it be important for the bonus plan to use the same EBITDA definition used in Krispy Kreme’s “secured credit facilities” (loan agreements)?
3. Describe how Krispy Kreme’s executive bonus plan might lead to accounting abuses at thecompany.


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  • CreatedSeptember 10, 2014
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