Dedication to customer service has helped grow the business and adding the retirement plan and fringe benefits has helped Jenny gain employee loyalty. KPI now has over 120 employees. As the business has grown, Jenny has come to rely more and more on a couple of key employees to run the business. She would hate to lose any of these employees and she would like to provide them with additional compensation beyond their salary and benefits that is somehow tied to the company’s performance.

1. List the major alternatives available to KPI to align the managers’ interest with the financial performance of the company.

2. Describe the tax consequences to the company and to the employees of each alternative.

3. What is your top recommendation to Jenny and why? Please limit your response to 3 sentences.