Abstract:

In this research we design a motivation system mechanism which prevents the occurrence of sandbagging in the goal-setting process. Goal setting is one of the most vital management processes in the company. However, it is vulnerable to several inefficiencies and malpractices, which hinder the company’s development. One of the common phenomena is the hiding of information by employees regarding the real possibilities of business development in order to negotiate the lowest possible goals for their incentive systems (sandbagging).

The proposed solution is based on the introduction of the ex ante determined ambitiousness parameter to the bonus system, combined with the parameters for the evaluation of plan execution and the bonus grades for variable compensation. The model stimulates truth-telling behaviour for managers in the goal-setting process and eliminates sandbagging. The concept has self-learning ability – based on past performance, managers will adjust their behaviour to maximize their risk-weighted rewards.