Question
The success of a budget program also depends on whether top management uses the budget to pressure or blame employees. Using budgets to blame employees
The success of a budget program also depends on whether top management uses the budget to pressure or blame employees. Using budgets to blame employees breeds hostility, tension, and mistrust rather than cooperation and productivity. Unfortunately, the budget is too often used as a pressure device and an excessive emphasis is placed on meeting the budget under all circumstances. Rather than being used as a weapon, the budget should be used as a positive instrument to assist in establishing goals, measuring operating results, and isolating areas that need attention. The budgeting process is also influenced by the fact that bonuses are often based on meeting and exceeding budgets. Typically, no bonus is paid unless the budget is met. The bonus often increases when the budget target is exceeded, but the bonus is usually capped out at some level. For obvious reasons, managers who have such a bonus plan or whose performance is evaluated based on meeting budget targets usually prefer to be evaluated based on highly achievable budgets. Moreover, highly achievable budgets may help build a managers confidence and generate greater commitment to the budget while also reducing the likelihood that a manager will engage in undesirable behavior at the end of budgetary periods to secure bonus compensation. So, while some experts argue that budget targets should be very challenging and should require managers to stretch to meet their goals, in practice, most companies set their budget targets at highly achievable levels.
Discuss what you think would be a good way to eliminate some of the behavioral aspects of tying compensation to budgets. Discuss what incentives you would provide that would lead to the setting of more accurate or realistic budgets by those involved.
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