Refer to Theory in Practice 9.1, which describes UBS’s plans to pay a substantial percent-age of senior management bonuses by means of UBS bonds.
Evaluate the effect of such a bonus plan, relative to a bonus plan paying all bonus in terms of company stock, on a senior manager’s propensity to:
a. Adopt risky operating strategies
b. Adopt conditionally conservative accounting policies
c. Cover up the effects of shirking on effort by opportunistically managing reported earnings upward