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Corporate Budget is Broken-Let’s Fix it By: Ashley Hernandez and Kelsey Fitch

Corporate Budget is Broken-Let’s Fix it By: Ashley Hernandez and Kelsey Fitch. Corporate Budget is a Joke. It encourages managers to cheat and lie Managers inflating results and lowballing targets It penalizes for telling the truth. Source of Problem.

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Corporate Budget is Broken-Let’s Fix it By: Ashley Hernandez and Kelsey Fitch

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  1. Corporate Budget is Broken-Let’s Fix itBy: Ashley Hernandez and Kelsey Fitch

  2. Corporate Budget is a Joke • It encourages managers to cheat and lie • Managers inflating results and lowballing targets • It penalizes for telling the truth

  3. Source of Problem • 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

  4. How to Fix the Problem • 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

  5. Making the Switch • 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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