CEO`s still getting bonuses based on the stock performance...

A recent study from Cornell shows that paying CEO’s bonuses based on the company stock performance does not necessarily lead to a better performance for the company.
Decades of consistent evidence is pointing towards the direction that we should look at different options to reward CEO’s. Why is the number of CEO’s that are getting bonuses based on the stock performance still growing? This remains a question that is unanswered on Wall Street.

As a financial adviser I look at how a company is managed when I select mutual funds, which is derived from a group of companies. The way the performance of the top management is measured and rewarded is essential to determine long term gains. Warren Buffet believes that one of the most important factors in selecting stocks is the top management of the company.

When companies are managed by greedy CEO’s that are not having a long term outlook and are just looking to get a quick return on their investment, investors should avoid these companies. In the short term the stock might go up, but over time the company cannot maintain a sustainable growth and the stock price will be negatively affected.

Sources:
http://finance.yahoo.com/news/surprise--paying-ceos-for-stock-performance-doesn-t-help-companies--cornell-183854141.html
https://hbr.org/1993/09/why-incentive-plans-cannot-work

 

 


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