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Published byJuliana Scarlett Modified over 3 years ago
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It encourages managers to cheat and lie Managers inflating results and lowballing targets It penalizes for telling the truth
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The budget process itself is not the root, but the use of budget targets to determine compensation. Two things happen when managers are told they will receive bonuses when specific goals are met: They will set low targets that are easily achievable They do whatever it takes to reach them, even at the cost of the company
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Cut the link between bonuses and budgets Create a Linear Compensation Plan Managers are still rewarded but the rewards are independent of budget targets Bonuses received remain the same whether the budget set below actual or above actual Two additional points Nonmonetary rewards should also be independent Dishonest managers may continue to lie, a risk that companies have always had
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It will not be easy for companies to make the change to linear compensation system Some guidelines to ease these transition Get the details right Three key considerations: the performance measures used, the positioning and slope of bonus line, and the establishment of minimum and maximum compensation levels Do Not backtrack Lead from the top
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