Jeremy Goldstein is a practicing New York City attorney. Mr. Goldstein’s focuses on compensation and corporate governance at his law firm. His experience with many corporations, including Bank of America, Goldman Sachs, and Chevron Texaco has led him to develop some beliefs about effective incentivizing of employees. He is adamant about the manner in which EPS is used to incentivize employees.
Jeremy Goldstein agrees that increasing Earnings per Share (EPS) is an effective way to incentivize employees. When share earnings rise, it is appropriate to award employees who made that possible with some type of compensation increase, after all EPS does influence stock price. Everyone, including the stock holders and the company wins when stock prices rise.
However, Jeremy Goldstein also believes using EPS as an incentive does come with drawbacks. Some CEO’s of corporations use EPS as an unfair advantage over others. Ignoring faults and granting favoritism could be directed towards CEO’s that enjoy the benefits of EPS as an incentive. This skewed perspective could give some CEO’s willing to manipulate the EPS metrics power to alter the results. Some in power would find it acceptable to drive up the share price by falsifying the metric results.
A successful corporation must incorporate several concepts if it is to operate with growth in mind, both short and long-term growth. These concepts include, initial growth, profitability, efficient use of capital, and positioning itself strategically for the future. It must diversify it time horizons to maintain its viability in the short and long term. Balancing these concepts ensures CEOs and executives don’t focus solely on the company’s short or long-term goals.
These short-term incentives do not determine the ultimate long-term growth of the company. They fail to hold CEO’s accountable for the company’s overall performance. The value of using EPS as an incentive is undisputed, but it can be easily falsified. A much better means of incentivizing employees can be found in focusing on both short and long-term goals.
Jeremy Goldstein sees employees who are encouraged by the performance-based EPS incentive will work harder and smarter which is a great benefit for any growing company. When that concept is properly tied to executives and CEOs being held to high standards of performance for the short and long-term success of the company, then the growth is almost guaranteed. Finally, good judgment is the most important factor. Each company has to take an honest look at their circumstances and apply the most effective incentives for their growth stage. Learn more: http://officialjeremygoldstein.com/published-works/