## **Learning Outcomes**

After studying this article, you will be able to explain the behavioural and ethical issues arising from performance target setting. You will identify why targets may cause dysfunctional behaviour, define ‘gaming’ and result manipulation, describe common risks and symptoms, and recommend practical measures to limit manipulation and uphold fairness in performance management.

## **ACCA Performance Management (PM) Syllabus**

For ACCA Performance Management (PM), you are required to understand the behavioural and ethical impacts of performance measurement systems. In particular, you should focus your revision on:

- The behavioural influence of performance targets on managers and staff
- Causes and types of dysfunctional behaviour, including gaming and manipulation of results
- Motivational impacts of different target difficulty levels
- Ethical concerns in performance reporting and management
- Practical steps to reduce manipulation and encourage ethical conduct

## **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 'gaming' in the context of performance measurement?
   a) Improving long-term company value
   b) Manipulating results to meet targets artificially
   c) Setting realistic, achievable targets
   d) Encouraging cross-departmental cooperation

2. True or false? Setting unattainable, ‘ideal’ performance targets always drives employees to work harder and leads to better results.

3. List two ways in which managers might manipulate reported results to meet a bonus-linked performance target.

4. What is the difference between goal congruence and dysfunctional behaviour?

## **Introduction**

Performance targets are a critical component of organisational control and motivation. However, targets and rewards can have unintended effects. Ethical and behavioural problems can arise when individuals or teams seek to meet targets at any cost—particularly when rewards or penalties are significant. This article examines the main types of dysfunctional behaviour that occur—such as gaming and manipulation—why they happen, and how organisations can reduce these risks.

> **Key Term: dysfunctional behaviour**
> Actions by employees or managers that are intended to achieve performance targets but are actually damaging to the organisation's real objectives.
>
> **Key Term: gaming**
> The deliberate manipulation of activities or results to make performance appear better than it actually is, often to meet a target or earn a reward.
>
> **Key Term: result manipulation**
> The distortion of reported financial or non-financial results to meet targets, typically through accounting tricks, reclassification of expenses, or timing changes.

## **Performance Targets and Behaviour**

Performance targets, if designed and used carefully, can be powerful motivators. However, poor target setting—such as making targets excessive or linking large financial rewards to them—can motivate unwanted or even unethical behaviour.

### Target Difficulty and Motivation

Targets usually fall into three categories:

- **Easy targets**: Quickly reached, offer little stretch, can demotivate high performers.
- **Fairly challenging (attainable) targets**: Realistic but require effort; generally the most motivating.
- **Unattainable ‘ideal’ targets**: Unrealistic high targets, can demotivate or cause staff to abandon efforts or resort to manipulation.

If rewards or penalties depend on target achievement, pressure to hit those numbers increases. This creates risk of distortion.

### Dysfunctional Behaviour: Why it Occurs

Dysfunctional behaviour arises when individuals focus on meeting targets rather than achieving the true aims of the business. This happens when:

- The target is poorly aligned with business goals or is too narrow.
- The reward for hitting target is very large or the consequence of failure is severe.
- Only one measure is monitored, ignoring broader consequences.

Common symptoms include excessive focus on the measured performance area to the detriment of other areas, and attempts to improve performance on paper rather than in reality.

## **Gaming and Manipulation—Types and Symptoms**

### Forms of Manipulation

Result manipulation can occur through:

- **Accounting choices**: Changing depreciation methods, provisions, or recognition timing to flatter results.
- **Real activity manipulation**: Postponing necessary expenditure (e.g., maintenance), accelerating sales, or withholding costs to meet targets for the period.
- **Selective reporting**: Highlighting only positive key performance indicators while excluding negative factors.

### ‘Gaming’ Activities

Gaming typically includes:

- **Throughput gaming**: Artificially increasing throughput—e.g., producing output with no immediate demand to show higher activity.
- **Resource gaming**: Requesting more resources than necessary, then ‘giving up’ some to appear efficient.
- **Budget slack**: Overstating costs/understating revenues during budget setting to make achievement easier.

### **Worked Example 1.1**

A sales manager’s bonus depends on exceeding a quarterly revenue target. Near the end of the quarter, sales are below target, so the manager offers very steep discounts to large customers to encourage advance purchases, pulling sales forward from the next quarter.

> **Answer:**
>
> The manager is gaming the system. By bringing sales forward to hit the reward threshold, the manager inflates this quarter’s results at the cost of future periods. This distorts performance, potentially damages profit margins, and creates misleading trends.
>
> ### **Exam Warning**
>
> Always question whether improved results reflect genuine operational improvement or merely changed reporting or opportunistic behaviour. If manipulation is possible, it often is occurring where strong incentives are present.

## **Causes of Manipulation and Gaming**

Key contributors include:

- Overly ambitious or ideal standards that seem unattainable
- Excessive focus on a single measure—ignoring other important results
- Reward schemes that depend strictly on short-term, easily manipulated results
- Lack of checks and independent review of performance results

When these factors combine, it is likely that artificial performance ‘improvements’ do not reflect real, sustainable progress.

## **Ethical Consequences**

Manipulating results to achieve targets is not only unfair to the organisation—it is unethical. It may:

- Undermine confidence in reporting and decision-making
- Lead to unfair rewards (or penalties) for individuals or teams
- Mislead shareholders and external users
- Damage long-term performance through distorted actions

Accountants and managers have a responsibility to ensure performance measurement systems are fair, transparent, and not easily abused.

## **Limiting Risks: Practical Guidance**

To reduce manipulation and gaming:

- Use multiple, balanced measures—not only one
- Appraise both short- and long-term results
- Regularly review and adjust targets for reasonableness
- Involve those being assessed in target setting for fairness
- Apply clear, enforced ethical guidelines—rewarding genuine improvement, not only target achievement
- Use independent audits or checks on reported results

### **Worked Example 1.2**

A production department has a target for minimising machine downtime. The department manager delays necessary maintenance until after the period’s end to hit the target, causing more severe breakdowns later.

> **Answer:**
>
> This is dysfunctional behaviour and manipulation. Delaying maintenance for appearances is likely to cause higher costs in future and does not serve the business’s true interest, even though it hits the current target.

### **Revision Tip**

When reviewing targets for an exam scenario, ask: If you were the manager, could you game the system? If so, would that behaviour hurt the company in the long term?

## **Summary**

Performance targets can motivate but also create risks of gaming and manipulation. If targets are poorly designed, or rewards are large, staff may focus on ‘beating the system’ rather than true performance. Using a variety of balanced, reasonable measures, clear ethical rules, and regular reviews of both targets and results reduces these risks and promotes goal congruence—where manager and organisational interests are aligned.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define dysfunctional behaviour, gaming, and result manipulation in a performance management context
- Identify the behavioural and ethical risks created by poor performance target design
- Explain common methods and symptoms of manipulation and gaming
- Understand how target difficulty and reward systems influence behaviour
- Recommend ways to reduce gaming and manipulation risks for fair, ethical assessment

## **Key Terms and Concepts**

- dysfunctional behaviour
- gaming
- result manipulation


Ethical and behavioural considerations - Performance targets, gaming, and manipulation risks