Performance-based incentive plans have become a hot-button issue for many businesses. In the past, this was the only way to make incentive payments to employees. It was so simple. If the company did well, then employees should be paid bonuses. If the company did poorly, then no bonuses would be paid out. However, now executive compensation committees are changing their focus and wondering if these are really the best ways for them to reward their employees.
The first argument of many opponents of the performance-based incentive payments is that executives have far too much power. They are able to alter results by simply changing the day-to-day operations of the company. For example, if a CEO wants a bigger bonus for three quarters of the year, he might just hold off on several large capital projects until the last quarter, earning himself a huge bonuses in quarter one, two, and three, and then no bonus in quarter four. If he hadn’t done this, he might have only earned a small bonus or no bonus in any quarters.
Another reason committees are rethinking their plans is that metrics used to pay out these bonuses are generally very short-term in scope. Companies use earnings per share, EBIT, and net income to determine what bonuses should be, and all of these metrics reset every year. Employees, while incentivized to make the year profitable, have no incentive to keep that progress up for the foreseeable future. This means that employees might be sacrificing future performance to get their bonuses today.
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Jeremy Goldstein, Partner at Jeremy L. Goldstein & Associates and an expert in compensation law, has come up with a unique and innovative perspective on this whole debate. He first says that companies should make sure that their executives are being held accountable for all actions. He is also saying that companies need to start thinking of alternative measurements of success and company growth to be paying out their employees rather than the short-term metrics they are currently using.
Jeremy Goldstein seems to know what he is talking about. He has been hailed as an expert in his field for years now, and he has helped hundreds of large companies with their corporate governance and compensation structures. He was even appointed to the Executive Compensation Committee of the American Bar Association. Jeremy Goldstein has made a name for himself in New York, and he continues to bring innovative and radical solutions to companies and employees that everyone can live with.