- 78% of executives would sacrifice positive net present value projects if it would make them miss quarterly earnings expectations.
- Long term executive compensation plans increase operating performance in the long term, but decrease it in the short term. It’s a difficult trade-off for investors and managers.
- We’ll provide you with a tool to use to assess whether companies increase long term or short term value.
Last week we questioned whether the large amounts spent on buybacks creates any shareholder value at all.
We closed our article by mentioning the CEO of General Electric (NYSE: GE) who is spending more than $20 billion a year on buybacks attempting to push stock prices higher, even though GE has a terrible track record related to buybacks. We concluded that shareholder value in this case is being destroyed because someone wants a higher paycheck in his last few years before retirement.
No matter what GE does, the topic of creating value is essential for investing, especially for long term investing. Today, we’ll discuss a few ways of determining whether the management of the companies you own is really focused on creating long term value or more focused on creating short term value in order to pad their paychecks. More →