Whenever we get a reward for good work, we tend to repeat the rewarding action often. This psychological concept is vivid in the business world. Where, the top executives, who earn more, tend to put in more effort. Thereby increasing the profitability of their firms.
Compensation has always been a bone of contention. This is because the people who do most of the work in companies are paid very little compared to what the top executives in the same organization earn. Studies show that there is a mismatch between the compensation of the CEO and that of lower-ranking employees.
Executive remuneration is made up of fiscal incentives and other non-fiscal incentives. This is typically made up of salary, bonus, insurance, and other benefits. Other examples of incentives include share and stock options. Executive pay is good for corporate governance.
Corporations aim to retain talent by rewarding the performance of their top executives. In the compensation packages, CEO’s are increasingly being paid with stock options. This is seen as a motivating factor for the executives since they will endeavor to align their interests with the interests of the shareholders.
This situation, however, creates a ticking time bomb because it is prone to manipulation by top executives. This creates a battleground because shareholders could lose all their value in the long-term.
One of the share options offered to executives is Earnings per Share (EPS). It indicates the value of each share relative to the profit of the whole company. It determines the prices of shares in the stock market. The use of EPS in determining compensation packages increases the overall productivity of the employees.
Jeremy Goldstein recommends a middle ground between the argument for and against the use of share options in compensation packages. What he provides is a solution that will see executives held responsible for matching their pay performance with the long-term goals of the company.
‘The legal 500’ lists Jeremy Goldstein as one of the leading compensation lawyers. He is also the chair of the mergers and acquisitions subcommittee of the American Business Association’s business arm and a board member of the Professional Advisory Board of the NYU Journal of Business and Law.
He is an alumnus of New York, Chicago, and Cornell Universities. Jeremy was a partner at Wachtell, Lipton, Rosen and Katz law firm before starting his practice, Jeremy Goldstein & Associates LLC, which is an advisory law firm dealing in executive compensation. Learn more: http://officialjeremygoldstein.com/philanthropy/