ACCA Strategic Professional · Advanced Performance Management · Non-financial performance measurement
Marlow Hotels sets branch manager bonuses on budgeted profit. Managers have started to negotiate easy budgets and to delay recording some revenue to the next period when they have already exceeded target. Which limitation of financial targets does this most directly show?
The behaviour shows that financial targets linked to bonuses can encourage manipulation and budgetary slack. Managers negotiate easy budgets and shift revenue between periods to protect or smooth their bonus, which distorts reported performance and weakens the control value of the budget.
- AFinancial targets are always unattainable
- BFinancial targets can encourage manipulation and budgetary slackCorrect
- CFinancial targets prevent comparison between branches
- DFinancial targets cannot be linked to rewards
Explanation
Negotiating easy budgets is budgetary slack, and shifting revenue between periods is manipulation of reported results. Both arise when rewards are tied to a single financial target. The targets are not necessarily unattainable, and they can be linked to rewards and compared.
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