A common pitfall is tying incentive compensation, such as annual bonuses, to performance against a predetermined plan or budget. This inevitably leads people to restrain their aspirations for the business in order to make it easier to “beat plan.” In turn, this is interpreted as sandbagging by corporate headquarters or investors. The end result is a time-consuming, soul-destroying, and ultimately unproductive gaming of the planning and budgeting process. Instead, your plan should drive resources and actions that help you realize the full potential of your best strategy. Your budget should be a tool for controlling costs relative to revenue. Neither should be used for determining annual bonuses.
Authors: Greg Rotz, Ken Favaro
Subjects: Management, Planning