Friday 1, April 2022
Board dysfunction
“Incentives matter.” That’s a two-word summary of the subject of economics. Capitalism, a development that, arguably, has immeasurably enriched a large part of the global population, and certainly raised productity to the point where the planet can sustain a vastly greater number of people than any previous system, neatly solves the problem of alignments of incentive.
Intrinsic Value post by Roger Lowenstein
One attempt to align incentives is to pay stock-based compensation. Paying in stock seems free (the company can print virtual share certificates in limitless quantities at essentially zero cost). In theory, this works. In practice, ‘SBC’ creates even bigger incentives to manipulate the share price on a short term basis. Sometimes executives cash out before the market notices, sometimes they do not. My gut instinct is to avoid big SBC payers.
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