ACCA Strategic Professional · Strategic Business Leader · Enabling success: performance excellence
Tamsin Retail's board is reviewing risks to its strategy of rapid store-opening targets. It finds that regional managers, rewarded on openings per year, are ignoring site-quality checks. Which risk-related conclusion is most appropriate?
The incentive scheme is misaligned with the board's risk appetite. Rewarding openings alone encourages managers to skip site-quality checks and take excessive risk. Rewards should include quality and risk-adjusted measures. Insurance or raising appetite does not fix the behavioural cause, and hitting the target does not prove success.
- AThe risk appetite is clearly too low and should be raised
- BThe incentive scheme is misaligned with the board's risk appetite, so rewards should include quality and risk-adjusted measuresCorrect
- CRisk should be fully transferred through insurance
- DNo action is needed because targets are being met
Explanation
Rewarding volume alone encourages risk-taking beyond appetite. Aligning rewards with quality and risk-adjusted measures links performance to the board's risk tolerance. Insurance cannot cover poor strategic site choices, and meeting the target does not mean the objective of profitable growth is achieved.
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