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Running head: COMPENSATION METHOD 1

Compensation Method

Name

Institution

COMPENSATION METHOD 2

Accounting for a Different Compensation Method

Compensation method is a framework for remunerating staff members or paying

employees in organizations. The methodology differs based on liability and expenditure

obligations as evident in most settings. They also present different benefits and challenges.

According to Evans & Haskins (2007), every organization is under obligation to choose a

suitable compensation method. The method should be cost effective, flexible and sustainable. In

particular, there are two major forms of compensation that include direct and indirect

compensation methods (Dave, 2013).

The direct forms of payment include salaries, bonuses, and commissions among others.

However, the indirect forms are primarily long term benefit and incentives of diverse nature such

as health insurance. Direct forms are highly associated with higher liability cost while the

indirect methods relate to expenses. They are presented in the financial statements under such

categories given that they influence quality performance in organizations (Dave, 2013).

Therefore, companies must be able to identify and adopt a viable compensation method that

fosters cost reduction.

This paper gives credible information that seeks to answer the question about the suitable

payment plan or method that Adenosine Therapeutics Company should embrace going forward.

The company was started with the mission of providing quality Medicare services to the public

at affordable rates. It offers a range of health care services that include diagnosis, treatment of

diseases, therapeutic services, nursing care and counseling services (Evans & Haskins, 2007).

The company that was started in the year 1999 has managed to support many employees who are

employed on permanent and temporary terms. The employees include doctors, nurses, other

COMPENSATION METHOD 3

medics and support staff. They are remunerated at the end of each month, and the company

incurs the expenses.

The methodology the company has been using in compensating the employees is salary

based that falls under direct compensation form or method. They are paid wages that are a

liability item as presented in the financial statement. As noted, the form of compensation has

been increasing the company's liability structure thereby fueling deliberations on how to manage

the liability and expenditure rates. This brings the question that is at the heart of generating the

necessary solution that, will the streamlining of direct forms of compensation under GAAP help

Adenosine Therapeutics Company to manage liabilities and expenses effectively?

The accounting standard(s) to consider

Answering the question that touches on the best compensation plan that Adenosine

Therapeutics Company can adopt borders on the critical understanding of the accounting

standards. The standards provide appropriate incentives that ensure effective reporting and

capturing of any form of compensation (Dave, 2013). They also provide amicable ways of

dealing with salary reductions and increases. The standards equally help in the management of

inflationary and deflationary imbalances that may occur.

Indeed, direct form of compensation plan is good and appropriate for the company.

Under the kind of compensation, payments are recorded as wages in the financial reports, and

they are categorized into three categories that include salary, bonuses, and commission (Wang,

Liao & University of Kentucky. 2015). The payment methodology is still suitable for the

company given that it deals with both permanent and temporary employees. It has also not grown

to a multinational level where it can embrace other forms of payment. What is needed is for the

company to embrace the strategy in adherence to the Generally Accepted Accounting Principle

COMPENSATION METHOD 4

(GAAP). The principle gives a standardized methodology of how salaries are paid and reported.

It also facilitates proper reporting of any increases and decreases in liability and expenses.

Similarly, it provides a framework that guides salary increment and decrease in cautioning the

company from inflation challenges (Evans & Haskins, 2007).

It is recognizable that Adenosine Therapeutics Company has not been adhering to the

ethical principles and guidelines as outlined in the GAAP framework. The aspect is evident as

the company has been facing challenges with reporting salary increases in the financial

statements. Managing liability and expenses items in the financial statements have equally been a

concerning matter. Therefore, the proposed strategy will help in restoring sanity in the financial

reporting.

Conclusion on the research question

In conclusion, the company should continue using direct compensation strategy or

concept in paying employees. However, the payment methodology should be aligned to the

provisions of GAAP accounting standard, framework, and guidelines. The company should

uphold ethics when formulating salary amounts, deciding increment and reporting compensation

including the evident changes. The compensation plan is also characterized by limited ambiguity

as compared to the equity-based program given that it allows for adjustments and cost related

expenses can be controlled. Reporting of future earnings can be done without the fear of inflation

under the framework.

Knowledge, estimates, or assumptions used

Arrival at the conclusion is based on the knowledge of accounting standards, principles,

and experience. The accounting standards give a solid framework on how to report and deal with

various expenditure including liability items. The standards spell clearly what constitute

COMPENSATION METHOD 5

expenditure and liability in a company. They also provide a framework on how they should be

treated. Experience also plays a significant role in determining the appropriate compensation

methods that companies such as Adenosine Therapeutics can adopt. Various compensation

methods present different challenges to companies thereby requiring a deeper understanding

when selecting compensation plans for companies.

Conclusion

It is inevitably clear that Adenosine Therapeutics Company has been facing challenges

with the management and reporting of liability and expenditure items. The problems are

attributable to the application of inconsistent accounting standard or framework for reporting

changes in liabilities. Therefore, the move to adopt GAAP is viable as it will help in addressing

the issue that has been hindering progress in the institution for long.

COMPENSATION METHOD 6

References

Dave, K. (2013). The Different Forms of Compensation. Retrieved on 25

Oct. 2016 from,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1277001

Evans & Haskins (2007). Adenosine Therapeutics LLC: Accounting for a Different

Compensation Method. Retrieved on 25

Oct. 2016 from

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1277001

Wang, Z., Liao, Y., University of Kentucky., & University of Kentucky. (2015). Compensation

methods for demand response. New York.

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