September 12, 2016

Behavioural economics and executive pay effectiveness

Guerdon Associates

There is a general consensus among boards and institutional investors that companies should be managed for long-term value. While this does not seem to stop these institutional investors from parking our superannuation savings with short-sellers. Nevertheless, the sentiment is definitely for the long-term.

This sentiment has been a primary factor in the gradual increase in long-term incentives. Investors prefer this focus on the long term. Executives do not. And a big reason is that a chunk of LTI is usually contingent on relative Total Shareholder Return (TSR) performance.

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