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Tax and Accounting: Winning Incentives

Tax and Accounting: Winning Incentives
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Successful investment in China depends heavily on how to retain and encourage talented administrators at all levels. The company will lose its competitiveness unless it has an upper management team that can consistently improve performance.

The Objectives of Management Incentives
Management incentives in China need to meet three control objectives:
● Improving performance
● Providing incentives for outstanding decision-making
● Providing fair feedback

However, establishing a solid incentive framework during the implementation period means focusing on several other standards, such as tax deduction on upper management income and companies, as well as the risk levels acceptable to management. In addition, the incentive plan should match the product life cycle.
The company should also stimulate China management to make decisions that comply with their headquarters’ global strategic objectives. This exceeds the range of traditional financial targets, which include income improvement and cost control, but it is crucial for companies to consider long-term development.

Cost Allocation
Paying China management depends on the cost control results; however, methods of cost allocation can influence management’s performance and ultimate success rate. Direct distribution and cross distribution are the two possible methods for finance; remember that fair cost allocation can lead to a company’s China targets matching their global targets.

Performance Appraisal
A performance index that focuses only on financial activities results in a short-term view for the company. Laying foundations for long-term profits means a possible absence or even reduction in short-term or current profits.
At the same time, balancing long-term and short-term targets is crucial, as is the balance between non-financial and financial indexes. Design and evaluation of a multiple performance index should include four different areas. These are:
●Finance: This depends on the financial index and includes the rate of investment return, growth rate of profit, and net margin after tax.
●Customers: Tracking the success within the target market is another important performance indicator that includes an examination of market share, the level of customer profits and the growth rate of new customers.
●Internal operation: This focuses on the improvement of internal organisational processes, such as innovation of product or service and improvement of the operational and customer service.
●Learning and growth: This aspect pays attention to the necessary capabilities of organisational development, such as developing core abilities, employee satisfaction and the ratio of new product incomes.
A strict performance evaluation should include a series of related targets and indexes. These indexes are not only consistent from beginning to end, but also work together to strengthen each other.
However, past practice has shown that the other aspects also need to be observed closely. For instance, managerial familiarity with the financial index may lead companies to place undue emphasis on finance and neglect other crucial areas of development.

The key aspects of management incentives and performance appraisal should complement the ultimate goal of going public and meeting strategic targets such as acquisitions and mergers. This is an essential factor for effective performance appraisal.

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