Incentive plans and bonuses seem like an extremely easy thing to wrap your head around. If the company does well, you get more money in your paycheck. If the company is suffering, then you get less money in your bonus check. While it may seem simple, many companies have started to determine that performance-based bonus plans like this might not be the best thing for the long-term success of the company. They have called in experts like Jeremy L. Goldstein and his firm, Jeremy L. Goldstein & Associates, to determine the best course of action going forward.
While it is true that employee satisfaction and productivity in the short-term rises as a result of these bonus plans, there is very little evidence that these plans help companies in the long term. Skeptics would argue that, due to the nature of the plans, which focus on past-based metrics like earnings per share and net income for the prior period, that employees only have an incentive to increase their efforts in the current year, and they start to let goals for future years fall by the wayside. Learn more: https://lawyers.justia.com/lawyer/jeremy-goldstein-1275422
There are also arguments that executives will stop spending, which all companies need to grow, in order to increase the bottom line for the year. They might also decide to increase spending all in one year so that only one year is affected by these projects and expenditures instead of spreading them out over several years. This can also create cash flow problems for the company and result in large amounts of debt coming due at the same time in the future. Either way, executives have the ability to sacrifice the future of the company for their bonuses.
Jeremy Goldstein has worked with several Fortune 500 companies to get through debates just like this, and his firm has worked with companies going through major transitions in their compensation plans and corporate structure. Goldstein’s suggestion is that compensation committees start to scrutinize exactly what their executives are doing. If there is a large decision being made about expenditures, the committee should determine if that decision was made to help the company or to help the executive increase his or her bonus.
Goldstein has also suggested that these plans add in metrics that take into account profitability over the long-term instead of just the prior year or quarter. He suggested that they focus on actual-to-forecast metrics and whether or not the company is meeting its long-term goals rather than just its short-term numbers. In this way, Goldstein has created a scenario in which everyone wins.