Efficiency is about doing more with less in terms of time, energy and materials. It means defining the successful formula with precision for each node of performance at anytime. Budgeting and planning are dreaded chores for most managers. Never-the-less, a company cannot thrive without a plan. Planning related processes are intended to answer two critical questions in managing the enterprise: Are internal resources being...

by Michael C. Jensen The Monitor Group and Harvard Business School e-mail: MJensen@hbs.edu Abstract This paper analyzes the counterproductive effects associated with using budgets or targets in an organisation’s performance measurement and compensation systems. Paying people on the basis of how their performance relates to a budget or target causes people to game the system and in doing so to destroy value in two main...