Shareholder value

Dell recently announced that they had identified a number of accounting errors and evidence of misconduct at their company. This news follows a bonus takeaway I talked about in a previous post. http://givemebigmoney.blogspot.com/2007/02/opportunities-in-guerilla-recruiting.html
The news just keeps getting worse at Dell, but Dell is similar to many other companies in corporate America. The difference is, Dell got exposed. Others won't be far behind.

So what drives this sort of behavior? One of the major culprits is executive compensation. Incentive plans that reward top executives based on the value of the share price is a recipe for disaster. The temptation to manipulate the books to prop up the stock price is very real when the executive stands to lose a boat load of money from reporting a quarter that missed "expectations". Yet most companies continue to reward their executives with stock options and restricted stock forcing executives to focus primarily on the stock price.

While it is important to continue to provide value to shareholders, short-term solutions that put the company at risk is not the answer. Top executives should be rewarded on revenue growth, employee retention, profit, leadership skills as determined by their employees, and ethical behavior as determined by an independent firm. These are things that will provide long-term value to the shareholders.

Taking care of the business will take care of the share price. A lesson many companies have failed to learn. It has already caught up to Dell, who is next?