The managers of many U.S.-basedmultinational corporations (MNCs) have heard arguments that an MNC’s exposure to currency movements will have unfavorable effects on its cash flows and earnings in some...

The managers of many U.S.-basedmultinational corporations (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 managers’ compensation (including bonuses) for the current quarter or year is often based on the reported earnings. Thus, because the earnings are influenced by exchange rate movements, managers’ own compensation is influenced by exchange rate movements. So, please write one or two comprehensive paragraphs 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.