Accounting-Based Incentive
  
Categories: Accounting, Careers, Company Management, Tax, Trusts and Estates, Ethics/Morals, Financial Theory
When you hear "incentive," think "compensation."
According to the National Association of Shmoop Accounting Research, D.C. division, 147% of company action is determined by the manner in which its C-level officers are paid. So accounting-based incentive is actually a really important determiner in the evaluation of the prospects of a company. Executives get paid in both cash and equity, and the size of those payments is often determined by metrics that need accounting magic to be applied to them to determine whether or not the executive really did grow EBITDA 18%, and thus vest into her 300,000 options.
Why the difficulty? EBITDA is not a tightly-defined GAAP term. It's largely made up by accountants and creative application of metrics can move the calculation of EBITDA up or down a whole lot. So if you're an accountant at a corporation and the CEO suddenly becomes very friendly with you around bonus calculation time, accept her hot cocoa with great cynicism.
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Finance: What is GAAP?21 Views
Finance allah shmoop what is a gap Yeah not this
Nor this Nor this gap is an accounting term that
stands for generally accepted accounting principles And it is basically
the accounting code of hammurabi or the ten commandments that
is There are lots and lots and lots of ways
that clever bean counters could define and or account for
the notion of profits lots of ways to recognize revenues
versus sales and lots of ways to think about how
much that ten commandment frisbee factory is appreciating in value
each year Well the world according to gaff outlines the
structure under which accountants must you know count beans the
basic idea Well sort of in the vein of the
golden rule that is do unto others as you'd have
them do unto you Gap requires that accountants always present
their numbers in the most reasonably conservative manner possible such
that they never overstate how profitable or how well the
company is doing Gap is the framework the map the
religion and the destinations we want to go inside this
neck of the accounting woods are three income statement cash
flow statement balance sheet will none of these three key
elements mean anything however unless they all follow the same
rules they're linked like gears in an overpriced swiss watch
and the eighteen zillion individual rules on their own mean
nothing like what is revenue Is it a dollar you
collect in cash at a video game arcade booth Is
it the promise to pay that dollar in a year
Well there are lots of ways to account for this
notion of revenue so don't think of gaff isa siri's
of rules rather think of it as this you know
key mathey kind of finance e a county religion it's
all about quote doing right unquote and part of that
issue is a natural conservatism that has to come with
it kind of amish you'd think would be a good
gap Accountants Well if you're thinking about how to account
for five dollars promised to you in a year well
you have to recognize that there is risk you won't
collect it and that money a year from now is
worth less than its face value and well that you
should categorise those revenues way off in the distance differently
from how you'd categorize collecting the five dollar bill in
cash that day and putting it in your cigar box
there right So gap is basically the force in accounting 00:02:26.44 --> [endTime] May it be with you
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