I'm looking at this from a societal POV rather than shareholder POV. In 2023 public companies paid record dividends and buybacks despite 1% tax. 2023 was also a record profits year. With that backdrop, no wonder stock market is up and why the economy is good or bad depending on who you talk to.

Went through a few incentives packages. They are mostly different with each industry having their own KPIs but all had TSR as a metric. It makes sense, as a shareholder if you give me greater return i will compensate you for it with a bonus.

The problem is how short term focused it all is. TSR includes the change in stock price. If you're not a tech company trading on hype, the easiest and faster way to increase stock price is to cut OPEX or Capex. Management hires consultants like Deloitte and McKinsey who hire benchmarking companies to give them a report on how to do this. Standardization and outsourcing are the 2 key themes.

Standardize most all processes based on the way the consultants tell you which minimizes customization costs and onboarding costs for new employees and then outsource where there is a pool of super cheap labor which is India and Thailand as the popular ones.

Blue collar jobs got outsourced and now it's the white collar jobs. Think about the impact that had on the middle class. This new shift will be worse. That's the unintended consequence of tying executive compensation to TSR. Our government needs to stop this for good of society and make it taxing to replace an American job with foreign job. I also think limiting stock based compensation for cash payment instead. Management will have more skin in the game if they are paid in cash. It's a sign of confidence in the company when management buys the stock with their own cash. It doesn't happen so much now because they are given massive amount of stock annually regardless of performance so why use their own cash.

Dan Scott said:

---

I'm looking at this from a societal POV rather than shareholder POV. In 2023 public companies paid record dividends and buybacks despite 1% tax. 2023 was also a record profits year. With that backdrop, no wonder stock market is up and why the economy is good or bad depending on who you talk to.

Went through a few incentives packages. They are mostly different with each industry having their own KPIs but all had TSR as a metric. It makes sense, as a shareholder if you give me greater return i will compensate you for it with a bonus.

The problem is how short term focused it all is. TSR includes the change in stock price. If you're not a tech company trading on hype, the easiest and faster way to increase stock price is to cut OPEX or Capex. Management hires consultants like Deloitte and McKinsey who hire benchmarking companies to give them a report on how to do this. Standardization and outsourcing are the 2 key themes.

Standardize most all processes based on the way the consultants tell you which minimizes customization costs and onboarding costs for new employees and then outsource where there is a pool of super cheap labor which is India and Thailand as the popular ones.

Blue collar jobs got outsourced and now it's the white collar jobs. Think about the impact that had on the middle class. This new shift will be worse. That's the unintended consequence of tying executive compensation to TSR. Our government needs to stop this for good of society and make it taxing to replace an American job with foreign job. I also think limiting stock based compensation for cash payment instead. Management will have more skin in the game if they are paid in cash. It's a sign of confidence in the company when management buys the stock with their own cash. It doesn't happen so much now because they are given massive amount of stock annually regardless of performance so why use their own cash.

---

What you described has been the norm for at least 20 years. Probably longer, but that's a far as my career goes back.

Wall Street and DC have been too cozy for the entire history of our nation. I'm not entirely sure how you unbaked the current incentive structure that installs short sighted stock managers as corporate leadership.

The volatility in the Fortune rankings isn't all due to the world moving faster - a lot of it is a function of the cycle where a company gets milked for stock value, and in the process it loses everything that made it special in the first place.

Perhaps resale of stocks should be restricted with minimum hold requirements…

Essay appreciated.

Paying a CEO with stock aligns the CEO's incentives with the company's long term success. I fail to see how this is a bad thing. Paying them in cash is a sure fire way to watch them focus on short term gains.

Get Off My Lawn said:

---

Perhaps resale of stocks should be restricted with minimum hold requirements…

---

Interesting. I always took you for a conservative.

"That's the unintended consequence of tying executive compensation to TSR."

Maybe they aren't "unintended consequences" but this is exactly what is intended. This is a control mechanism and someone, besides execs and McKinsey, are making bang.

Follow the money.

A corporation's sole purpose is to create value for the shareholders. If that helps society as a by product fine but it has to deliver value to the shareholder. There is an argument that executives have taken compensation that employees should have received for their work towards creating shareholder value, however, there isn't an argument to be made that what companies are doing right now isn't the best thing for the shareholders. If you start in your 20's and invest in companies that make products consumers need and have a good dividend you will be a millionaire in 25 to 30 years maybe less than that. We can't force people to make good decisions like investing for the future but that is only the individuals fault

Quote:

---

Our government needs to stop this

---

Government needs to stfu and gtfo of the way.

hth.

McKinsey, Bain, and PwC et al are all vultures, but you will never convince the c-suite that they are stupid.

Bain is now pushing the "you only need 1k people per $B of revenue" story and the bloodbath in the tech industry that you have seen, along with skyrocketing shareholder value, is what you get.

They aren't wrong.

Jeeper79 said:

---

Get Off My Lawn said:

---

Perhaps resale of stocks should be restricted with minimum hold requirements…

---

Interesting. I always took you for a conservative.

---

That "perhaps" is because I haven't given the idea a complete vetting yet. I'm conservative in that I'm too pragmatic to be libertarian. Incentives and structure shape behavior. I'd much rather repeal so much government that small companies can rise and compete against megacorps, but the shaping forces of the current stock market result in very short sighted behaviors - behaviors which see huge companies advertising 20+ year visions while making zero investments in the people & dooming the next CEO to a talent vacuum.

Nobody on the inside has a vested interest to fix it: so what would allow a market to remain engaged, but reorient toward longevity focus? Perhaps stocks structured with 5 year holding standard where penalties are paid based on the speed of resale (50% of sale price for < 3 yr turn around, 25% penalty for < 5 yr turn around, and zero penalty for anything thereafter). I'd welcome correction if that's stupid - but I see the current scheme contorting us into such myopic and short sighted decision making that it's destructive.

What you described is exactly what is occurring at one of the European oil majors at the moment. To the tee. And I know it isn't the only firm, but I can speak about this one on a personal level.

Short-term focus is fine if that's what investors prefer. There is nothing inherently virtuous about a long-term vs short-term horizon. There isn't even anything that says a firm must be a going concern indefinitely. In fact, there are many reasons why a short-term thinking is inherently
logical:

1.) If you view earnings as a series of discounted cash flows, the near term periods are more valuable than those in the distant future. Maximizing earnings each period via short-run actions could certainly result in higher total returns than investing in a speculative, long-term project that won't bear fruit for some time.

2.) Long-term horizons enable procrastination. If you say "don't worry about the quarter, let's wait until we see the half or the full year," that is just putting off necessary reforms or actions. It's the business equivalent of saying "diet starts tomorrow."

Dan Scott said:

---

I'm looking at this from a societal POV rather than shareholder POV. In 2023 public companies paid record dividends and buybacks despite 1% tax. 2023 was also a record profits year. With that backdrop, no wonder stock market is up and why the economy is good or bad depending on who you talk to.

Went through a few incentives packages. They are mostly different with each industry having their own KPIs but all had TSR as a metric. It makes sense, as a shareholder if you give me greater return i will compensate you for it with a bonus.

The problem is how short term focused it all is. TSR includes the change in stock price. If you're not a tech company trading on hype, the easiest and faster way to increase stock price is to cut OPEX or Capex. Management hires consultants like Deloitte and McKinsey who hire benchmarking companies to give them a report on how to do this. Standardization and outsourcing are the 2 key themes.

Standardize most all processes based on the way the consultants tell you which minimizes customization costs and onboarding costs for new employees and then outsource where there is a pool of super cheap labor which is India and Thailand as the popular ones.

Blue collar jobs got outsourced and now it's the white collar jobs. Think about the impact that had on the middle class. This new shift will be worse. That's the unintended consequence of tying executive compensation to TSR. Our government needs to stop this for good of society and make it taxing to replace an American job with foreign job. I also think limiting stock based compensation for cash payment instead. Management will have more skin in the game if they are paid in cash. It's a sign of confidence in the company when management buys the stock with their own cash. It doesn't happen so much now because they are given massive amount of stock annually regardless of performance so why use their own cash.

---

TSR as an executive incentive is not being pushed by the government but rather primarily by shareholder service organizations like ISS and Glass Lewis. Secondly, most TSR share grants come in the form of 3 year, cliff vested, RELATIVE TSR performance shares - meaning a company's TSR as measured against basket of industry or peer companies over a 3 year period. In this way, if the company's stock price appreciates to a greater degree over the cycle, than other companies in the basket - then the executive wins as do the general shareholders. It directly aligns their interests. Third, quarterly earnings calls allow analysts and shareholders to gain insight into how a given company is performing and to tease out maneuvers like slashing CAPEX or other unusual decisions. It's not a perfect metric but it generally beats an internally developed "absolute" productivity metric which is free from external peer comparison.

Define short term... if the exec is continually compensated with stock and they are continually incentivized to drive gains it basically works as long term incentivization. Not very many CEOs have a thought process of "I think I've made enough money now, I think I'll stop"

The money keeps getting worse (we keep printing more) and these short term behaviors are maximally incentivized.

TriAg2010 said:

---

Short-term focus is fine if that's what investors prefer. There is nothing inherently virtuous about a long-term vs short-term horizon. There isn't even anything that says a firm must be a going concern indefinitely. In fact, there are many reasons why a short-term thinking is inherently
logical:

1.) If you view earnings as a series of discounted cash flows, the near term periods are more valuable than those in the distant future. Maximizing earnings each period via short-run actions could certainly result in higher total returns than investing in a speculative, long-term project that won't bear fruit for some time.

2.) Long-term horizons enable procrastination. If you say "don't worry about the quarter, let's wait until we see the half or the full year," that is just putting off necessary reforms or actions. It's the business equivalent of saying "diet starts tomorrow."

---

Win every day and the weeks and months and years and decades will take care of themselves.

BadMoonRisin said:

---

Quote:

---

Our government needs to stop this

---

Government needs to stfu and gtfo of the way.

hth.

McKinsey, Bain, and PwC et al are all vultures, but you will never convince the c-suite that they are stupid.

Bain is now pushing the "you only need 1k people per $B of revenue" story and the bloodbath in the tech industry that you have seen, along with skyrocketing shareholder value, is what you get.

They aren't wrong.

---

When I worked for Dell in the late 1990s, we were doing $1M per employee.

But I've never seen those kind of metrics since. Even Dell in the late 2010s was only doing about $500k per employee. And that was with 40,000+ employees in India.

The productivity levels required just cannot be found outside the USA.

Im out (involuntarily) and Im happy about it. New start date at a legit company in two weeks.

Morale is at an all-time low @ RR.

HollywoodBQ said:

---

The productivity levels required just cannot be found outside the USA.

---

When I was in IT for one of the big telecoms, for almost 19 yrs, I saw them outsource a ton to dot-Indians (and not just in India, specifically) until they realized that even though they could pay them less, they ended up spending more to fix their **** ups than they saved. Same for Filipino call centers.

Cultural differences. America, as usual, rocks out with its cock out.

Quote:

---

If you start in your 20's and invest in companies that make products consumers need and have a good dividend you will be a millionaire in 25 to 30 years maybe less than that. We can't force people to make good decisions like investing for the future but that is only the individuals fault

---

The problem is that the aggregate of individual corporate decisions is moving overseas the jobs that would pay enough money for 20-year-olds to invest.

BadMoonRisin said:

---

Im out (involuntarily) and Im happy about it. New start date at a legit company in two weeks.

Morale is at an all-time low @ RR.

---

Good luck on the new gig. I learned a lot at Dell and I'm thankful for that but I'm also glad I'm not there anymore.

Dan Scott said:

---

I'm looking at this from a societal POV rather than shareholder POV. In 2023 public companies paid record dividends and buybacks despite 1% tax. 2023 was also a record profits year. With that backdrop, no wonder stock market is up and why the economy is good or bad depending on who you talk to.

Went through a few incentives packages. They are mostly different with each industry having their own KPIs but all had TSR as a metric. It makes sense, as a shareholder if you give me greater return i will compensate you for it with a bonus.

The problem is how short term focused it all is. TSR includes the change in stock price. If you're not a tech company trading on hype, the easiest and faster way to increase stock price is to cut OPEX or Capex. Management hires consultants like Deloitte and McKinsey who hire benchmarking companies to give them a report on how to do this. Standardization and outsourcing are the 2 key themes.

Standardize most all processes based on the way the consultants tell you which minimizes customization costs and onboarding costs for new employees and then outsource where there is a pool of super cheap labor which is India and Thailand as the popular ones.

Blue collar jobs got outsourced and now it's the white collar jobs. Think about the impact that had on the middle class. This new shift will be worse. That's the unintended consequence of tying executive compensation to TSR. Our government needs to stop this for good of society and make it taxing to replace an American job with foreign job. I also think limiting stock based compensation for cash payment instead. Management will have more skin in the game if they are paid in cash. It's a sign of confidence in the company when management buys the stock with their own cash. It doesn't happen so much now because they are given massive amount of stock annually regardless of performance so why use their own cash.

---

Having worked at Boeing I can directly point to prior executive incentives that led to the problems we see today. Hell we were discussing them in my senior year supply chain classes at a&m in relation to the massive outsourcing of the 787