Targets upon motivation

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The impact of targets upon motivation

A budget represents a target

and aiming towards a target can be a powerful motivator.

However, whether the target will actually cause employees to do better is thought to depend on how difficult the target is perceived to be. 

Employees have different perceptions of targets, but generally it is thought that

  • if targets are very low, actual performance can be pulled down from where it might naturally have been

  • if targets are habitually very high, then employees might give up and, again, performance can be reduced – if you know that no matter how hard you try you will fail to meet the target, it’s easy to conclude that you might as well not try at all.

Aim to set budgets

So, the aim is to set budgets which are perceived as being possible, but which entice employees to try harder than they otherwise might have done. 

The concept of a ‘motivating budget’ is a powerful one, although the budget which is best for motivating might not represent the results which are actually expected. 



Managers can, and perhaps should, build in a margin for noble failure.

The relationship between budget difficulty and actual performance is typically represented in Figure 1, which shows the following

  • When the budget is very easy, actual performance is low. 

    It has been pulled down by the low demands made of employees.

  • When the budget is very difficult, actual performance is low.

    Why try when you are doomed to failure?

  • When a budget is set at the level of the expectations (the best estimate of what performance will actually be), employees are likely to perform as expected.

  • If a more difficult aspirational budget is set, employees will try harder, and if the budget is judged just right then their actual performance will be at its maximum, though often falling short of the budget.

ACCA MA C7c Relationship between budget and performance

FIGURE 1 : THE RELATIONSHIP BETWEEN BUDGET DIFFICULTY AND ACTUAL PERFORMANCE

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