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Hi,John
Why it can reduce the the short-termism(sacrifice the longterm goal for shorterm target) when linking manager’s reward to share price?
Thank you alot!Because share prices tend to be affected by longer-term expectations of future profits rather than just the current profitability.
I’,m sorry, but why share prices tend to be affected by longer-term expectations of future profits rather than just the current profitability?
Could you give me more example?p/s : I can easily guess the answer like yours, everyone know in order reduce short-termism , we have to balance the shorterm target and longterm goal, so, if they say” link the bonus to share price”, it means the share price increase will reflect the longterm goal achived in that.
The point i want to know here is Why increase in share price indicate the longterm expectation is taken to account of manager, represent the manger have put an effort to get the long -term expectation rather than just only concern about the short-term target.
In a previous question , I asked about why ZBB increase the goal congruence through Flexibility.
I mean What is the Flexibility in here and how flexibility can lead to goal congruence
I think about it alot, Does flexibility means ” the operatinal manger will know which activities will be focus and which activity will be stop through the budget and then they will have time to prepare and focus on what they think suppose to be happened , well in manged and fast-respond to the command from top manger”.? so if they have scheme incentive + flexibility they will fully committed and disposed toward the longterm goal lead to goal congruence.I hope you will answer me more specific, no offend, but too general and define some ” word” have their own their definition in book is too boring.
My answer was not general at all – share prices are determined by future expectations and not by current anything. That is quite a specific answer.
My company may have been making losses for year, but if you thought it was going to make big profits in the future then you would pay a lot for the share.
If on the other hand you thought it was going to do badly in the future you would not be prepared to pay much at all, even if I had make high profits in the past.Does that make sense?!
If you are not happy with my answers, then maybe you should ask clearer questions.I do not know why you bother thinking about one sentence about flexibility a lot. Did you read it in an exam answer? If so how many marks were there for that one point?
ZBB itself implies flexibility – it looks for alternative ways of doing things rather than stay doing things the same way as at present (which is what incremental budgeting does). Given that the managers will be involved in looking for ‘better ways of doing things’ they will be more motivated (hopefully) in trying to make things work rather than just be almost forced to continue doing things the same way as at present.
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