SERIES: The Initiative on 21st Century Capitalism | Number 12 of 28 « Previous | Next »

Can Executive Compensation Reform Cure Short-Termism?

There is an increasingly pervasive view among corporate governance observers that senior managers are too focused on short-term results at the expense of long-term interests.  Concerns about “short-termism” have been expressed within the financial industry context and outside of it, but because of the recent financial crisis, much of the discussion has been directed at financial institutions.  To combat short-termism, several commentators have advocated executive compensation reform to encourage senior managers to adopt a longer-term perspective.  Yet these reforms will likely prove ineffective because of other significant pressures on managers to maintain current stock prices.

Paper highlights include:

  1. A general overview short-termism and the causes and effect of overweighing short-term results relative to long-term consequences when making decisions.
  2. Proposals to redesign compensation structures to combat short-termism.
  3. Questioning the effectiveness of compensation proposals.
  4. A look at the new corporate governance world.
  5. An examination of changes to senior management job security.
  6. Policy proposals for better options to mitigate short-termism.

Download and read the full paper » (PDF)

SERIES: The Initiative on 21st Century Capitalism | Number 12