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ACCA Strategic Professional · Advanced Performance Management · Performance and reward

Zentara Ltd pays its regional sales managers a fixed salary plus a bonus of 10% of any sales revenue above target. Managers have started offering large discounts and accepting high-risk customers at quarter end to exceed target. Which design weakness in the scheme best explains this behaviour?

The scheme rewards revenue alone, ignoring profit and risk. Managers therefore maximise sales through discounts and risky customers. A balanced set of measures, such as margin and bad debts, would reduce this dysfunctional goal-incongruent behaviour.

  1. AThe bonus is based on a single measure that ignores profit and risk, so it encourages dysfunctional behaviourCorrect
  2. BThe fixed salary element is too high relative to the bonus
  3. CThe target is set by senior management without consultation
  4. DThe bonus is paid too soon after the performance period

Explanation

A bonus tied only to revenue rewards volume regardless of margin or credit quality. Managers therefore discount heavily and take risky customers. The other options may affect motivation but do not explain this specific behaviour.

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