The performance-based bonuses system motivates earnings management only if the performance measurement can be manipulated through earnings management. Managers with above bonus incentives are more likely increase the value of the bonus they receive by managing earnings. This study examines the relationship between the bonus-based compensation of employees and earnings management. The empirical results show that granting bonus as a performance incentive leads to more aggressive earnings management. While bonus-grants as incentives of performance can managers get benefit from manipulating earnings reports to increase the value of the bonuses they receive. Therefore, while bonus-based compensation have positive effects on aligning incentives, the optimal bonus compensation system should reflects the consequences of earnings management arising from these performance incentives.