It would seem quite obvious that long-term incentives should be designed to encourage long-term growth in value of an enterprise. Today’s column discusses whether governance of long-term pay for executives is losing some of its focus on that objective. In particular, it examines the current emphasis on Total Shareholder Return (TSR).
TSR measures stock growth or decline (plus dividends) between two dates (sometimes trading day averages ending on corresponding dates are used instead). For example, on Dec. 31, 2012, the closing market price for a public company’s stock could be measured against its closing price on Dec. 31, 2011. That, together with dividends, indicates the TSR for that year.
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