Many factors go into creating a sustainable economic environment for corporations, and addressing these factors as of late has not been easy. Jeremy Goldstein, attorney at law practicing in New York City, has witnessed firsthand what these situations can lead to – a battleground in which incentives for employees and long-term investors in businesses stand to lose. Having worked with large corporations like Goldman Sachs, Verizon, and Bank of America, he offers up advice on how to handle the use of Earnings per Share, or EPS, as well as a variety of other incentive-based programs, and offers insight into the debate over the use of these in performance-based pay programs.
EPS, in reference to the way that employee incentives are handled, are generally a positive thing. For shareholders, EPS is one of the biggest influencers in stock price. This is what drives shareholders to buy or sell, but moreover, it provides an incentive for companies to increase the amount that they pay out per employee. Recent studies done have shown that including EPS as part of the overall pay structure at a company has proven to make companies more successful. At first glance, EPS seems like an advantageous system to include in a business strategy. However, the competitive nature of shares and trading, this can sometimes allow entities to leverage EPS to an unfair advantage.
Opponents of EPS have pointed out that use of EPS within a corporation can lead to favoritism and blind eyes turned to CEOS of companies. Overarchingly, they believe that rather than providing collective control, these metrics allow executives and CEOs a vast amount of power over whether or not metrics are being met in reference to EPS, skewing accurate results. What this means to shareholders is that the higher-ups in companies could be skewing metric results in order to drive share sales – something which could be perceived as misleading at best and illegal at worst.
Other opponents underline that these types of metrics are only interested in short-term profitability, meaning that EPS provides no sustainable way to support a company’s corporate growth and reinvestment of money in the long run. Additionally, performance-based pay programs are criticized for being unreliable and ever-changing, only adding to critics’ worry over the use of EPS to back stock exchange. Experts, like Larry Fink, argue that metrics like these hurt everyone, including companies. By refocusing on investment on long-term goals rather than focus on short-term ones like EPS linked to performance-based pay, companies will begin to find ways to strengthen their share value.
Jeremy Goldstein recommends a compromise between the recommended actions of anti- and pro-EPS proponents. Instead of doing away with pay per performance, which often does act as an incentive for better workplaces, find a way to hold CEOs and executives of companies responsible for their actions. Ensuring that pay per performance matches up with and is measured against the long-term goals of the company. This provides a platform for long-term, sustainable growth of a company as well as measured and repeatable share growth.
About Jeremy Goldstein
Jeremy Goldstein has been practicing in New York City for a number of years, starting out at a large firm there before branching off to create his own practice, Jeremy L. Goldstein and Associates, LLC. His J.D. is from New York University School of Law. As well as working on legal cases with the large companies listed above, he has worked with several cellular companies, banking companies, oil and petroleum companies, and stockholder companies on matters of monetary legality and compensation. He is listed as one of the top selections for legal counsel in the Legal 500 and the Chambers USA Guide to America’s Leading Lawyers for Business. In addition, he has written for numerous journals of law, providing up-to-date opinion and counsel on current and popular legal matters. He is a contributor to the NYU Journal of Law and Business as a member of the professional advisory board. Goldstein belongs to the American Bar Association Business Section and is the chair of the Mergers and Acquisitions Committee of the Executive Compensation Committee. He frequently donates to Fountain House, further supporting them in their efforts to aid people afflicted with mental illness.