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ACCA Strategic Professional · Advanced Performance Management · Performance and reward

Kestrel Components plc pays its sales director a bonus based solely on annual revenue growth. The board notices that she has begun offering heavy discounts in the final month of each year to hit the target, even though this reduces profit. Which principle of effective reward design has been breached most directly?

The scheme breaches goal congruence. Paying a bonus only on revenue growth encourages the director to cut prices late in the year, which raises revenue but reduces profit, so her behaviour no longer supports the organisation's wider objectives.

  1. AThe reward scheme is not congruent with the organisation's overall objectivesCorrect
  2. BThe reward scheme is too complex for the director to understand
  3. CThe reward scheme is paid too long after the performance period ends
  4. DThe reward scheme lacks an element of non-financial payment

Explanation

Rewarding revenue growth alone encourages behaviour (discounting) that harms profit, so the director's goals are not aligned with the company's. This is a failure of goal congruence. Complexity and timing are not the issue described.

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