In this topic 7 sections
- 47Ask what the performance system encourages people to do
- 48Recognise power and culture in the choice of measures
- 49Look for improvement in the outcome, not just the score
- 50Match responsibility, influence and reward
- 51Balance timely recognition with lasting performance
- 52Review the scheme as a management decision
- 53Sources and further reading
Ask what the performance system encourages people to do
A performance measure directs attention. A reward adds a personal consequence, making the definition and use of the measure particularly important. The organisation may intend to encourage better service, yet reward a visible activity that can increase without improving that service.
Consider the fictional Marlow Linen Services customer-support team. Management wants customer problems resolved promptly and accurately. It considers rewarding the number of cases marked closed. All examples and figures here are original illustrative assumptions. Closing a record is easy to count, but can occur before the customer's shortage or billing problem is resolved.
Staff respond to management attention as well as formal pay. Recognition, development opportunities, promotion and access to resources can matter. So can informal signals about which results are praised and which problems should remain unmentioned. A reward policy that says quality matters is weakened when every management conversation concerns only volume.
The useful question is not whether measurement changes behaviour; it is whether the change supports the organisation's purpose, including effects that appear after the reporting period.
Recognise power and culture in the choice of measures
Measures are selected by people with different priorities. A sales-led group may emphasise customer acquisition; an operations group may stress capacity use; finance may focus on margin and cash. Formal titles do not reveal every source of influence. Expertise, control of information and relationships can also shape which measures dominate.
At Marlow, customer support may know that repeated enquiries arise from inaccurate dispatch records. If the influential dispatch manager defines the issue as slow support staff, a cases-per-hour target can focus blame on the wrong activity. The accountant should compare evidence across the process and invite the people doing the work to explain dependencies.
Concept sources: ACCA, Corporate governance from the inside out — internal culture and behaviour influence whether formal governance works.
A learning culture does not mean abandoning accountability. It distinguishes a reported problem from deliberate misrepresentation and asks what should change. If every unfavourable result produces punishment, people may delay reporting it. If no action ever follows a problem, reporting can appear pointless. Managers need to show that accurate information leads to fair investigation and useful decisions.
Look for improvement in the outcome, not just the score
The figures justify investigation, not an immediate accusation. The second cohort may contain more complex issues, or staff may have become better at recording reopened cases. Check the work and data before attributing the result to effort or dishonesty.
| Behavioural warning | How it could appear at Marlow | A useful response |
|---|---|---|
| Attention narrows to the target | Easy cases are selected while complex shortages wait | Examine the age and mix of unresolved work |
| The record replaces the objective | A case is closed before the customer receives the remedy | Verify a sample against actual resolution evidence |
| Work is shifted between periods | Difficult cases are held outside the reporting queue | Reconcile incoming requests with recorded cases |
| Short-term gains weaken future service | Staff stop explaining recurring causes to the dispatch team | Recognise prevention and knowledge sharing as part of the job |
One indicator cannot protect every aspect of performance. Use a manageable set of complementary evidence and retain professional judgement. Adding dozens of targets can create confusion and still miss the underlying incentive.
Match responsibility, influence and reward
Controllability asks whether a person can reasonably influence the performance used to evaluate them. A support employee can influence the accuracy of advice but may not control dispatch errors or corporate funding costs. Relevant information is needed to separate individual effort, shared dependencies and external conditions.
Targets should be understandable, sufficiently challenging and credible with the available resources. Participation can reveal practical obstacles and increase acceptance; it can also encourage an employee to negotiate an undemanding target. Challenge assumptions using evidence without assuming that every concern is an excuse.
Concept sources: ACCA, Reward schemes for employees and management — reward effectiveness depends on understandable criteria, influence over results and behavioural effects.
Individual rewards can make the effort-result connection visible, but may discourage helping colleagues or sharing difficult work. Team rewards can suit interdependent activities, but a member may benefit without contributing fairly. A company-wide profit measure may encourage common purpose while giving a junior employee little direct influence. There is no universally best arrangement.
Marlow could assess the team's durable resolution and prevention work while also reviewing individual contribution and support for colleagues. The design needs transparent evidence, a review route and safeguards against favouritism. It should not rely solely on a manager's unexplained impression of who worked hardest.
Balance timely recognition with lasting performance
Recognition close to an action helps people understand what was valued. Paying the whole reward before quality or longer-term effects can be observed may encourage premature claims. Delaying all recognition for years can weaken the perceived connection between effort and reward. The relevant timing depends on how long the result takes to become reliable.
For an original Marlow trial, management might acknowledge a documented process improvement promptly, then assess a later reward component after enough comparable cases have completed the quality review. Explain the conditions in advance and apply them consistently. A delay alone does not make a scheme fair or effective.
Short-termism can also appear through avoiding useful investment. A manager may defer training or maintenance to protect this period's measured result, leaving another manager to deal with the consequences. Review service resilience and capability alongside current costs. Equally, a long-term label does not make spending valuable: proposed investments still need a credible purpose and evidence.
Rewards must also be affordable. Assume Marlow verifies $20,000 of annual net operating savings before incentive and scheme-administration costs. If the reward costs $6,000 and administration costs $2,000, the remaining benefit is $12,000. Include other relevant costs and quality effects before concluding that the scheme improved performance. A reward for an accounting saving that never releases cash or useful capacity needs separate explanation.
Review the scheme as a management decision
Before launch, work through realistic situations: a difficult case, an external disruption, an exceptional success and an attractive way of improving the score without improving service. Decide how evidence, exceptions and disputes will be handled. A small trial can reveal problems before the scheme becomes a major commitment.
After launch, compare intended and actual behaviour. Review quality, unresolved work, collaboration and evidence of reporting changes alongside the rewarded indicator. Check whether the administrative cost is proportionate and whether employees understand the calculation. Give the review an owner and a date; otherwise a defective measure can survive simply because it already appears in the report.
The management accountant's contribution is both analytical and interpersonal. Reconcile the numbers, investigate the explanation, make trade-offs visible and communicate recommendations in a way that people can use. Do not treat a reward formula as a substitute for judgement or an excuse to ignore contradictory evidence.
Self-check: Marlow's team bonus is based on closing cases quickly. Staff begin avoiding complicated customer issues. Would increasing the bonus solve the problem?
Answer: It may strengthen the incentive to avoid those issues. First reconsider the definition of success, the allocation of difficult work and the quality evidence. Assess resolution and prevention, not just record closure; review controllability and teamwork. The reward should reinforce an improved design, rather than amplify the existing distortion.
Sources and further reading
Study-guide reading: Strategic Management Accounting, Module 5, printed pages 278 and 285–289 — power and culture, behavioural consequences, incentives, reward timing and individual versus group performance.
Concept sources: ACCA, Reward schemes for employees and management
Concept sources: ACCA, Corporate governance from the inside out