Unintended Consequences of Performance-Based Pay in Accounting Theory

Running head: ACCOUNTING THEORY
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ACCOUNTING THEORY 2
Accounting theory.
Question 1
It is marked that making the managerial pay depending on measures of managerial and /
or firm performance definitely encourages the personnel to convey good performance to
stakeholders. It truly builds up team spirit among the team affiliates to achieving the greater
productivity and reach its objectives. Performance based pay encourages personnel as it makes
their work rewarding and interesting. Nevertheless these may create a series of unintended
consequences. Huge fiscal incentives causes’ unpremeditated risk and occasionally
counterproductive outcomes, it is tough to satisfactorily stipulate precisely what individuals
ought to do and thus how their performance should be measured.
One of the unpremeditated result caused by performance based pay might be on
relationships and teamwork. Relationships amongst workforces can be causalities of scramble for
payments. If the work necessitates teamwork, hitherto personnel are rewarded centered on
individuals as contrasting to team output then this will reduce the performance (Shi 2017). In this
situation the company can evade the risk by being fair. Fairness has an important connection
with the co-operation. Cautious management and implementation of performance centered pay
can lead to affirmative results.
One more unpremeditated result is ethics and quality. Using greatly precise individual
performance incentives and assessment with occupations that are multipart, inter-reliant and have
numerous and unstructured goals can effect in personnel and management disregarding vital
facets of their work and interfere with performance in order to meet goals set (Dominici 2017).
The personnel might stress quantity over quality. Hence, when designing sustainable linked

ACCOUNTING THEORY 3
reward systems, it is essential to make sure the conditions used for performance appraisal is well-
managed and monitored. This will ensure suitable managerial pay and deliverance of good
performance to shareholders.
Question 2
This report is based on the Snam’s Remuneration report of 2017. Short-term variable
incentive is provided yearly in monetary form. It is an implement that is useful in inspiring and
directing management’s accomplishment in short term, in link with the company targets set by
the Board of Directors. The quantity of short-term incentives hinge on the position held and
corporation individual performance outcomes. The criteria for implementations are;
Corporate/ CEO: Investments (20%), Operational Efficiency (30%)
Expansion of non-regulated events (10%), Sustainability (accident occurrence index for staffs
and contract personnel (10%), free cash flow (30%)
DIRS Targets: the Annual monetary incentive is calculated at 50% from the outcomes of the
target allocated to the CEO and, for the residual 50% from specific targets focused on financial,
operating and work performance.
The incentives provided depend on the outcomes attained in the preceding year and
assessed according to a performance gauge of 70/130 points, with least level for incentives
equivalent to a general performance of 85%. CEO short term value are 50% of the fixed payment
for outcomes of the corporate structure equivalent to the target score= 100; 65% of the fixed
payment equivalent to the max score=130. The long term variable incentive is kept for those
holding position with the utmost direct accountability for company outcomes, guarantees better
alignment between the actions management and interest of stakeholders.