define budget slack. Then, explain why a budget-based compensation scheme may lead managers to create budget...

define budget slack. Then, explain why a budget-based compensation scheme may lead managers to create budget slack.

Expert Solution

Budgetary slack is a built-in cushion in a budget that seeks to increase the chances of the actual performance being better than the budget.
There are two ways to accomplish budgetary slack: underestimate the amount of revenue or income to be generated or overestimate the amount of expenses that are to be incurred.
Budgetary slack is often viewed negatively as it is sometimes implemented so that managers can meet performance targets, ensuring bonuses or other benefits.
There are times when budgetary slack is justified, for example when the economic outlook is uncertain, and managers are therefore more conservative.
Budgetary slack can lead to mediocrity in a firm, resulting in a decrease in competitive advantage, lower revenues, and unhappy employees.
Budgetary slack can be prevented by having a small group of managers create the budget, and disassociating meeting budget targets with performance

ekkarill92 answered 1 year ago

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