The Budget Process Can Cause Managers to Do the Wrong Things

1. The Budget Process Can Cause Managers to Do the Wrong Things • Expectations of arbitrary cuts cause managers to “pad” budgets. • When asked what to cut, managers offer the most defensible items. Fat is hidden. • Budget cuts may affect the most useful projects while the hidden “fat” is left intact.

2. The Problem with Salary Budgets: • We want to keep the best people • The best people want to get above average raises, so they feel appreciated and work hard. • We want everyone to get above average raises. • Everybody knows what the raise pool is and know if they got an above- or below-average raise. • There is only so much money in the pool.

3. The Result: • Managers keep a loser on staff so someone can get a lousy raise and everybody else can be above average. • It’s important to keep a dud around at raise time so we can give above average raises to everybody else. • The bottom half makes the top half possible. For Job Security: be a loser.