While financial returns may be a good measure of how well executives are managing the company’s existing assets, they do not accurately reflect executive performance in areas with deferred returns-for example, strategic planning, growth opportunities, business initiatives, or investments in the discovery and development of new products and technologies. It is clear, then, that incentive plans based solely on accounting measures can induce senior management to make short-term business decisions, and compromise investment opportunities with the promise of deferred or non-monetary returns.
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