The Problem with Stock-Based Compensation

Leadership versus Management

It’s the rare CEO, such as Jeff Bezos of Amazon and Warren Buffett of Berkshire Hathaway, who are focused on building their business through creativity and ingenuity.  Most CEO are focused on stock price because their pay is tied to it.  This creates a unseemly relationship with Wall Street.  As we discussed here, the intent of tying CEO pay to stock price was to control CEO pay.  That hasn’t worked out so well.

Brian Richards does a nice job in his article expanding on why stock-based incentives aren’t working for Main Street and, in the long run, hurting Wall Street.  He, also, nicely holds the investor class accountable for its part in being more concerned about the next quarter than three years from now.  As members of the investor class, this short-term thinking is affecting long-term profits.

As a result, what’s lacking in  most public companies is leadership.  There’s enough management, but this leads to short-term thinking, less creativity and ingenuity and the blurring of the lines between the “real market” and the “expectations market”, as Roger Martin puts it.  Not only are these companies boring to watch, but their boring to work for.  This could be why more and more Harvard graduates are getting into technology.  Creativity is rewarded there.


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