The Case for Divisional Long-Term Incentives

by Graef Crystal, Mark Hurwich

Fall 1986

Volume 29
Issue 1

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Incentives have long been a sizable portion of executive compensation. These incentives are a powerful motivator, but companies need to consider more carefully both the short and long-term effects on the company in designing compensation packages. Many companies have made the mistake of emphasizing short-term incentives. This causes executives to focus on maximizing current earnings, often at the expense of long-term corporate health. Large corporations, in particular, also fall into the trap of pitting corporate divisions against each other in competition for short-term rewards, again to the long-term detriment of the company. What is needed is a system of long-term divisional incentives. This article identifies the candidates, measures, and methods for achieving this and shows how it will not only benefit the individual company, but the American economy as a whole.

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