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ACCA Strategic Professional · Advanced Performance Management · Performance optimisation in specific contexts

Tolvane Inc., a US-based multinational, evaluates its Brazilian subsidiary's manager. The budget was set at a rate of 5.0 reais per $1, but the real depreciated sharply during the year, raising reported dollar-translated profit variances against budget. The manager has no control over currency movements. Which approach best supports fair performance evaluation?

Evaluate the manager in local currency or restate the budget at actual exchange rates. This separates operating performance from currency movements the manager cannot control, which supports controllability and fairness in a multinational appraisal.

  1. AEvaluate performance in dollars using the actual year-end rate only
  2. BAssess performance in local currency, or restate the budget at actual exchange rates to separate operating from currency effectsCorrect
  3. CExclude the Brazilian subsidiary from the appraisal system
  4. DIncrease the manager's bonus to compensate for the currency loss regardless of results

Explanation

Fairness requires controllability, so local-currency measurement or flexing the budget to actual exchange rates isolates operating performance from translation effects. Using the year-end rate alone leaves the uncontrollable currency effect in the measure. Excluding the subsidiary or paying regardless of results removes accountability.

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