ACCA Strategic Professional · Advanced Performance Management · Sustainability
Aldermoor Group wants its management accounting to support integrated thinking. The CFO proposes linking executive bonuses to a single measure, annual profit after tax, while the integrated report claims a strategy of building human and natural capital over ten years. Which is the most significant weakness of this proposal from a performance management viewpoint?
The main weakness is misalignment: an annual profit-only bonus rewards short-term financial results and may encourage managers to erode human and natural capital, contradicting the ten-year multi-capital strategy reported. Integrated thinking requires incentives that reflect the capitals and time horizons in the strategy.
- AThe reward measure is short-term and financial, so it conflicts with the long-term multi-capital strategy reported and may encourage managers to erode other capitalsCorrect
- BProfit after tax cannot be audited and so cannot be used in reward schemes
- CIntegrated reporting prohibits financial measures in executive remuneration
- DUsing one measure always makes the scheme too complex to communicate
Explanation
Integrated thinking requires internal measures and incentives aligned to the strategy and capitals reported. A single annual profit measure may reward managers for cutting training or environmental spending, eroding human and natural capital. The other options are false: profit is auditable, the framework does not prohibit financial measures, and a single measure is simple rather than complex.
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