Gerry Hansell, Lars-Uwe Luther, Frank Plaschke, and Mathias Schatt

There is one problem with all forms of variable pay—whether short term or long term, based on cash or on equity. There is always a fi nancial upside for executives (and sometimes that upside is quite high), but there is not an equivalent downside. To be sure, executives may not receive a bonus if they do not beat their targets in the company’s plan, or they may fi nd that their options are worthless if the company’s stock tanks. But in neither case is their own wealth genuinely at risk, as it is for the typical investor. This asymmetry of risk between executives and investors reinforces a short-term focus and encourages imprudent risk-taking.

Like this content? Why not share it?
Share on FacebookTweet about this on TwitterShare on LinkedInBuffer this pagePin on PinterestShare on Redditshare on TumblrShare on StumbleUpon

Leave a Reply Cancel reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.