Every company aims at making profit. To ensure that they are able to make profit each year, it has to create a stable economic environment for the benefit of its employees and its investors. For this reason, companies come up with long term goals that will see them grow and make investments of its own. Despite this having a promise of profitability, survey shows that companies that use incentive based strategies like EPS, which are short-term, do better compared to those that have long term strategies. Learn more: https://www.linkedin.com/in/jeremy-goldstein-26aa1b4
EPS is commonly used as a way of determining a company’s profitability. Every time the company declares profit, a portion of it is divided to each outstanding share. Therefore, if the dividend per share is high, investors consider it an indication that the company is profitable. This makes EPS a great influencer of an investor’s decision to either buy or sell. It also allows the company to pay its employees better.
Since EPS makes the company appear profitable in the eyes of investors, many companies have included EPS as part of their overall pay structure. However, some executives use EPS to give themselves an unfair advantage in the market. It is possible for the CEOs to skew the results to show that their investors get more dividends. This is quite misleading if not criminal.
Opposers of EPS say that the fact that it does not provide for collective decision making, executives and CEO have too much power yet they need to be held accountable. In companies that use EPS, the CEO is the only one who can determine the company’s profitability. Since EPS depends on investor activity and is based on performance, it does not provide for a stable economic environment.
Jeremy Goldstein, an attorney with Jeremy L. Goldstein & Associates, LLC, recommends a compromise between short-term profit making strategies and long-term. He says companies can devise a way to have its executives accountable for their decisions and give long term strategies equal importance as short term. By doing this, companies will be able to experience sustainable growth and enjoy the benefits of share sales.
Jeremy Goldstein is an attorney with Jeremy L. Goldstein & Associates, LLC. He is known as an over achiever with an ability to pay meticulous attention to details. This has seen him work with big companies like United Technologies, Duke Energy and The Dow Chemical Company.