 It encourages managers to cheat and lie  Managers inflating results and lowballing targets  It penalizes for telling the truth

 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

 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

 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