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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Teal Logistics is moving to Beyond Budgeting. Previously, regional managers received bonuses if they beat a fixed profit target negotiated with head office, and many understated potential to make the target easy. Which change best reduces this gaming behaviour?

Rewarding relative performance against peers or prior periods, judged with hindsight and linked to team success, removes the incentive to negotiate slack into fixed targets. Higher bonuses or more detailed submissions leave the negotiated fixed-contract problem in place.

  1. AKeep negotiated fixed targets but raise the bonus percentage
  2. BBase rewards on performance relative to peers or prior periods, assessed with hindsight and shared team successCorrect
  3. CPay bonuses only if the original budget is met exactly
  4. DRequire managers to submit targets in greater detail before negotiation

Explanation

Beyond Budgeting uses relative performance and hindsight evaluation with team-based rewards, removing the incentive to negotiate easy targets. Higher bonuses or more detail keep the negotiated contract, and rewarding exact achievement encourages manipulation.

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