Performance shares are the shares given to top management of company as a reward for reaching performance criteria, e.g. earnings, market share. Examples of many companies have shown that managers are more interested in company results if they own part of it. Therefore, performance shares should motivate managers to reach higher results.
There are many examples showing that wrong set of targets for managers associated with performance shares can lead to better short time results, but then lead into decline or even crisis. Some managers try to reach targets quickly, at a cost of sustainable growth, obtain their shares, sell them and then leave company before the crisis occurs.
Therefore, it is very important to set proper targets, not only short time, but also long time ones.
- Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of financial economics, 38(2), 163-184.
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