Greed

Greed is not so good today.  Gordon Gekko’s time may be passing.  Gus Levy, Goldman’s chairman in the old days, may have had the right approach when he said, “Goldman is long-term greedy.”’ Today, what we are seeing and what boards have been encouraging is short-term greed, and those, like Goldman and others on Wall Street, are paying the price in reputation for the change in public attitude.

Putting aside the question of whether short-term greed is ever a wise corporate policy, boards have been creating compensation incentives for management that, in the guise of paying for performance and thus maximizing shareholder value, have encouraged short-term thinking and ultimately undermined the reputations of management and their companies.  Boards today need to take a broader look at how they can maximize lasting value for the corporation and the shareholders who stick with it over time.  What sort of compensation system will appropriately incentivize management to advance that goal?

If boards need to expand their focus beyond short-term shareholder returns, then compensation incentives need to be similarly adjusted.  The failed Wall Street banks maximized incentives for immediate returns in the form of commissions paid in cash.  Those incentives also held maximum risk for the company, but minimal risk for the big bonus players.  Pay for performance needs to focus on the long term and not just on immediate financial goals.  Behavior that enhances and advances the company’s value and reputation over the long run needs to be encouraged and compensated.

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