Performance-based pay has been on the top of many company’s agendas in recent years. Businesses always struggle with how to reward their employees for a job well-done, especially considering that these incentive payments are often a large part of the company’s budget. Now, a debate has come up around what the most appropriate way to reward these employees is, and the problem has become so bad that many companies have deferred to lawyers and consultants like Jeremy L. Goldstein to settle their disputes and come to a common resolution.
The main argument for performance-based pay is that it allows employees to feel some ownership in the results of the company. Flat incentive payments do not incentivize employees to raise sales or cut costs. Performance-based metrics give employees a sense of ownership over their own raises. These programs have often led to improved performance over many years as well. However, now many opponents are arguing that Executives have too much power to alter the performance of a company and that these pay programs are far from short-term in their purview.
One of the common metrics used for performance-based-pay programs is EPS, or earnings-per-share. Basic EPS is simply the earnings the company makes for the period in question divided by the number of shares outstanding. Understandably, this metric is very easy for Executives to influence. If they want a particularly successful quarter, they might just hold off on certain expenses or accelerate revenue into that quarter to improve the metrics. Also, EPS is not a measure of how the company will do in the future. It is possible for a company to have a very high EPS, and therefore high incentive payments, one quarter and then miss projections by a large margin in the next quarter. That is why Jeremy Goldstein was brought in to mediate.
With his help, these companies have determined that the best course of action is to mix short-term metrics like EPS with long-term outlooks on performance to determine an incentive program that works for everyone. They also want to make sure that Executives are held accountable for their decisions.
Jeremy Goldstein is a Partner at Jeremy L. Goldstein & Associates. He is based in New York and has been the lead on many compensation and corporate governance cases just like this one. His firm is focused on serving companies that are going through mergers and acquisitions, or those that are just going through major transitions in their structure, to determine the best way to alter their compensation packages.
Jeremy Goldstein has been a lawyer for several years. He earned his M.S. degree from the University of Chicago, and his J.D. from the New York University School of Law. He is currently the chair of the M&A Subcommittee of the Executive Compensation Committee of the American Bar Association Business Section, and he will continue to help companies for years to come.
Visit http://jlgassociates.com/ to learn more.