by Ken Vincent,Featured Contributor
Every business needs an annual budget. But, there are three major questions about budgets.
First, of course, is what basis do you use for that process? Do you take ten month actual for this year, revise a projection for the last two and use that as a basis to adapt to the coming year? Or, do you use a zero based budget platform where you assume everything is zero and build from that?
Secondly is the question of who participates in the budgeting process and who has the final say or veto power?
In any case, you must then look at the ethical issues of budgets and that can become a real conflict.
It is common for a GM to have a bonus based on some combination of revenue and GOP forecast targets or increases. If the GM is doing the budget is that a conflict of interest? If the ownership does the budget is there an incentive to do a budget that minimizes the size or potential for the GM bonus?
That doesn’t even address the question of is the bonus plan designed to make up for a lower than market salary or is it designed to be an incentive on top of a market competitive salary?
Chef’s often have bonus plans based on a combination of food cost and kitchen payroll. If there is a purchasing agent and a receiving clerk, the Chef doesn’t have full control of his food cost. If the GM sets menu pricing the chef can also be at a disadvantage. What if the GM decides to offer package plans that discount or comp some meals? Is the chef given some credit for that? Does the chef have exclusive control of his staffing guides for the kitchen or can you or HR overrule him?
These are just some of the potential ethical issues having to do with budgeting and bonuses. What has been you experience in handling these issues and perhaps others?