The formulae and variable definitions used in bonus schemes vary considerably
between firms, and even within a single firm across time. Nonetheless,
there are common features of these contracts. They typically define a variant of
reported earnings (Et) and an earnings target or lower bound (Lt) for use in
bonus computations. If reported earnings exceed their target, the contract
defines the maximum percentage (Pt) of the difference that can be allocated to
a bonus pool. If earnings are less than their target, no funds are allocated to
the pool. The formula for the maximum transfer to the bonus pool