Purpose - The purpose of the paper is to explore whether the impact of an incentive compensation system is just the manipulation of financial statements or at the expense of real future benefits. Specifically, it studies whether the compensation structure mitigates the negative influences. Design/methodology/approach - By empirical study, the paper explore the influences of incentive compensation system on the use of accrual-based, classification shifting, and real earnings management. Findings - The results show that incentive compensation simultaneously increases the use of accrual-based, classification shifting, and real earnings management. And a stock-based compensation system decreases the use of real earnings management, but increases the use of classification shifting and accruals-based earnings management. Research limitations/implications - This study only considers 5 compensations including salaries, bonuses and extraordinary charges, stock dividends, cash dividends, and employee stock options. In addition, earnings management methods are limited to classification shifting, accruals-based, or real earnings management. Practical implications/Social implication - The incentive compensation harm the firm's real benefit, that could be mitigates by a stock-based compensation structure. Originality/value - A stock-based compensation structure could mitigate the negative influences of the incentive compensation system.