In recent times, creating and maintaining a sustainable economic environment for major corporations is becoming an increasingly complicated task. Jeremy Goldstein, leading compensation lawyer in New York City and founder of Jeremy L. Goldstein and Associates, LLC, has offered advice in the long-standing debate over incentive based programs. Owing to his experience with Bank of America, Verizon and Goldman Sachs, he has witnessed firsthand how long-term investors and employee incentive programs are experiencing loss. Learn more: https://www.slideshare.net/JeremyGoldstein14/aci-compensation-committee-presentation-2016
EPS (earnings per share), Jeremy Goldstein believes is a positive factor contributing to employee incentive based programs. For investors, EPS is a major contributor of stock price, and the factor which plays a pivotal role in their decision to purchase or sell. Moreover, it offers an incentive to companies to increase their payout per employee. Research also reveals that adding EPS to overall pay structure leads to improved chances of a company’s success. While many individuals/corporations have experienced benefits associated with EPS, its drawbacks have also come to light. As a result of the competitive nature of trading and shares, at times certain entities are known to influence EPS for personal gain.
Adversaries of EPS cite its potential for favoritism at work, consequently rendering total control to CEOs and executives. Higher-ups may manipulate actual values of EPS in order to meet the required metrics. Put simply, there is an increased scope for tampering with values to increase sales of shares, which is both misleading and illegal. Therefore, making EPS a temporary gamble rather than a well thought out long term investment.
Furthermore, opponents elaborate that this system is aimed solely at short terms benefits, and cannot become a sustainable part of an organization’s growth. Some experts suggest companies to focus on long-term reinvestment, as opposed to performance based pay, which is ever-changing and unreliable. They are of the opinion that EPS and similar programs are a means to back the stock exchange. Hence, they fail to strengthen shares that contribute to healthy corporate growth of an organization.
Jeremy Goldstein, using his experience and insight of the corporate sector suggests a fair compromise between recommendations offered by supporters and opponents of EPS. Instead of eliminating pay per performance schemes that offer incentives for proper workplace growth; CEOs and executives must be held accountable for their actions. Thus, ensuring that both pay per performance and long-term goals of a company are given equal importance. This will create a module for repeatable and continued growth of share rate and sustainable growth of a company, according to Jeremy Goldstein.