Revise the bonus structure so that bonuses are not influenced by exchange rate movements.

The managers of many U.S.-based MNCs have heard arguments that an MNC’s exposure to currency movements will have unfavorable effects on its cash flows and earnings in some periods, and favorable effects on its cash flows and earnings in other periods, and that these effects will offset in the long run. Yet the managers’ compensation (including bonuses) for this quarter or year is based on the reported earnings. Since the earnings are influenced by exchange rate movements, their own compensation is influenced by exchange rate movements. Write a short essay on how MNCs could revise their bonus structure so that bonuses are not influenced by exchange rate movements. Alternatively, offer arguments to support leaving the bonus structure as it is.

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