## **Learning Outcomes**

After reading this article, you should be able to explain how motivation theories inform the design and effectiveness of performance management systems. You will understand how goal setting, expectancy theory, and reward design affect behaviour, drive goal congruence, and impact organisational results. You will be able to apply these theories to real-world scenarios and identify potential behavioural risks in performance measurement, as examined in ACCA Advanced Performance Management.

## **ACCA Advanced Performance Management (APM) Syllabus**

For ACCA Advanced Performance Management (APM), you are required to understand how behavioural factors influence performance management. Focus your revision on the following areas:

- The role of motivation in performance management and measurement
- The impact of goal setting on employee and manager behaviour
- The application and consequences of expectancy theory in reward scheme design
- How reward systems can align or conflict with corporate objectives
- Behavioural risks and unintended consequences of performance measurement systems

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following best describes expectancy theory?
   a) People are motivated by the desire to fulfil higher-level needs
   b) Employees are motivated when they believe effort will lead to expected rewards
   c) Setting challenging goals always reduces motivation
   d) Reward systems have no impact on motivation

2. A sales division links bonuses solely to current-year profit, leading to reluctance to invest in training. Explain the likely behavioural risk caused by this reward scheme.

3. List two key features of SMART targets in performance management.

4. True or false? Goal setting theory emphasizes that difficult but attainable goals boost performance if employees are committed to them.

## **Introduction**

Performance management is not just about setting objectives and measuring outcomes; it is about influencing behaviour to achieve organisational goals. Motivation theory helps explain how employees respond to targets, incentives, and performance measures. Understanding these behavioural aspects is essential for designing systems that support, rather than undermine, strategic and operational objectives.

This article covers the main theories of motivation relevant to performance management—goal setting and expectancy theory—and examines their practical implications. You will learn how reward schemes and measurement systems can motivate desired behaviour or, if poorly designed, create risks and unintended consequences.

> **Key Term: motivation**
> The internal and external factors that stimulate people to act in certain ways, especially toward achieving organisational objectives.
>
> **Key Term: goal congruence**
> The alignment of individual or departmental objectives with wider organisational goals, ensuring efforts are coordinated toward shared success.

## **MOTIVATION AND PERFORMANCE MANAGEMENT**

Designing effective performance management systems requires an understanding of what drives employees and managers to act. Motivation bridges the gap between targets and actual performance.

### The Importance of Behavioural Factors

Performance measures, targets, and reward schemes do more than monitor performance; they shape workplace behaviour. If measures focus too narrowly or incentives create conflicting objectives, employee actions may benefit individuals but harm overall results.

> **Key Term: performance measurement system**
> A set of metrics, targets, and processes used to plan, monitor, and control achievement of objectives in an organisation.

## **GOAL SETTING THEORY**

Goal setting theory, first developed by Locke, shows that specific and challenging goals lead to higher performance when employees accept and commit to them.

### Features of Effective Goals

Effective performance targets should be:

- **Specific:** Clear and unambiguous.
- **Measurable:** Progress and achievement can be assessed.
- **Attainable:** Challenging but realistic.
- **Relevant:** Aligned with wider organisational objectives.
- **Time-bound:** Linked to deadlines.

> **Key Term: SMART objectives**
> Targets designed to be Specific, Measurable, Achievable, Relevant, and Time bound to improve planning and motivation.

Goals are most effective when employees are involved in setting them and believe the targets are fair and worthwhile. Feedback also helps maintain motivation and ensures corrective action can be taken.

### **Worked Example 1.1**

A customer support team has a new target: resolve 90% of queries within 24 hours. Some representatives complain the target is unrealistic given high call volumes and limited training.

**Question:** Identify the potential behavioural impacts and how management could address them.

> **Answer:**
> Setting an unattainable goal may lead to frustration, stress, and reduced motivation. Staff may also focus on 'easy' queries to improve numbers or cut corners in service quality. Management should ensure targets are realistic, provide required training, and seek employee input when setting future goals.

## **EXPECTANCY THEORY**

Expectancy theory, proposed by Vroom, explains motivation as a function of three factors:

- Expectancy: Belief that effort will lead to performance.
- Instrumentality: Belief that performance will lead to a reward.
- Valence: Value placed on the reward by the individual.

Motivation increases when employees believe their actions directly affect the outcome and the reward is desirable.

> **Key Term: expectancy theory**
> A model stating that employees are motivated when they expect that effort will result in performance and performance will result in valued rewards.

If any link is weak—if performance measures are not within their control or the reward is insufficient—motivation may decline.

### **Worked Example 1.2**

A company introduces a bonus for warehouse staff based on company-wide profit. The warehouse team feels their effort does not influence overall profit, and few receive bonuses.

**Question:** Why is motivation likely to be low, applying expectancy theory?

> **Answer:**
> Expectancy is low if staff feel their individual effort has little impact on overall profit. Instrumentality is also weak if there is little connection between warehouse performance and the bonus. As a result, employees may not increase their effort or engagement because they do not expect it to affect the outcome.

## **REWARD SYSTEMS AND BEHAVIOURAL RISKS**

Performance management systems often link rewards to measured results. The theory is that 'what gets measured, gets done.' However, this can have unintended results.

When rewards focus too heavily on short-term financial measures, managers may neglect long-term priorities, quality, or innovation. They may even try to manipulate figures or game the system.

> **Key Term: reward scheme**
> The set of financial and non-financial incentives provided to employees in exchange for their performance, designed to support organisational objectives.

### **Worked Example 1.3**

A bank offers senior managers a significant bonus for reaching annual profit targets, with no consideration for customer retention or regulatory compliance. Some managers sell unsuitable products to customers, leading to regulatory fines and reputation damage.

**Question:** What behavioural problems did the reward scheme cause?

> **Answer:**
> The bonus focused entirely on short-term profit, encouraging managers to ignore long-term customer relationships and compliance standards. This led to behaviours that damaged the bank's reputation and incurred penalties—a classic example of poor goal congruence and unintended consequences from a badly designed reward scheme.

### **Exam Warning**

> In APM scenarios, always look for behavioural risks when evaluating performance measures and reward schemes. Watch for signs that incentives may encourage short-termism, manipulation, or actions that conflict with the organisation's strategy.

## **ALIGNING PERFORMANCE MEASUREMENT WITH ORGANISATIONAL GOALS**

Behavioural issues can be reduced by:

- Aligning measures and incentives with strategic objectives (goal congruence)
- Setting SMART and controllable targets
- Combining financial and non-financial measures
- Involving employees in goal setting
- Providing regular feedback and reviewing measures

### **Revision Tip**

> When analysing reward systems in exam scenarios, always consider whether the outcomes measured and rewarded are within employees' control and whether the rewards are valued. Explain how this will affect motivation and behaviour.

## **Summary**

Motivation is a central consideration in performance management. Goal setting and expectancy theory explain how employees respond to targets and rewards. Effective reward systems drive behaviour that meets organisational objectives. Poorly designed systems can lead to short-termism, goal conflict, and other behavioural risks. ACCA candidates must be able to identify these issues and recommend solutions.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the role of motivation in performance management systems
- Identify key features of goal setting theory and SMART objectives
- Describe expectancy theory and its implications for reward design
- Evaluate how reward schemes can encourage or discourage desired behaviour
- Identify behavioural risks such as goal conflict, manipulation, and short-termism
- Apply motivation theory to exam scenarios and suggest improvements

## **Key Terms and Concepts**

- motivation
- goal congruence
- performance measurement system
- SMART objectives
- expectancy theory
- reward scheme

Behavioural aspects of performance measurement - Motivation goal setting and expectancy theory