Here is a fact, not an opinion: Creating sustainable, long-term value turns out not to be a central driver of executive compensation today.
As counter-intuitive as that observation seems, it is the core finding of a recent report which focused a white-hot spotlight on “The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design Sustainable.” Written by Organizational Capital Partners in collaboration with the Investor Responsibility Research Center Institute, the study builds from a premise familiar to anyone who has taken Finance 101: Value creation demands that return on invested capital (ROIC) be greater than the weighted average cost of capital (WACC). You can survive for a period of time, perhaps even an extended period of time, burning through capital. Indeed, many start-up companies, and even new projects within established companies, do so. At some point, however, a company needs to become profitable. So you would think companies would incentivize their senior officers to achieve real economic profitability, but they don’t.
