Which is a risk associated with linking remuneration to the budget?

Linking remuneration to the budget can lead to unrealistic budget expectations, which is a significant risk. When employees know that their compensation is tied to meeting specific budget targets, there may be pressure to set overly optimistic budgets. This can create an environment where budget projections do not reflect realistic expectations, leading to potential underperformance.

Unrealistic budgets can also affect decision-making, as employees may prioritize meeting targets over making sound financial decisions. They might engage in behavior aimed solely at achieving budget goals rather than focusing on broader organizational objectives, which can compromise the overall effectiveness of the business.

Other potential responses could involve factors that may not be directly related to the inherent risks of linking remuneration to budgets. For example, achieving personal goals might be a separate aspect that does not necessarily correlate with budget alignment, while increased collaboration within teams could also result from better communication and shared objectives rather than a direct effect of remuneration strategies. Judgment based on highly controllable factors may suggest managerial bias but does not directly represent a risk associated with linking remuneration to the budget itself.