I think a lot of this has to do with the explosion of CEO (and by extension CxO) pay over the past 30 years.
Today, a CEO can turn in a few quarters of really solid earnings growth, they can earn enough to retire to a life a private jets. Back when CxO pay was lower, the only way to make that kind of bank was to claw your way into the top job and stay there for a decade or more.
The current situation strongly incentivizes short-term thinking.
With today's very high, option-heavy compensation a CEO making long-term investments in the company rather than cutting staff and doing stock buybacks is taking money out of his own pocket.
CEO’s also never face consequences for destroying companies. Zaslav has run WBD into the ground and it’s currently being surrounded by vultures, and he’s still making like half a billion a year.
I wish I could find the article about it that I read a few years back. But CEOS needs skin in the game again. the incentives are all broken. running a good business doesn't matter anymore (at least in the US).
While I definitely agree CEO pay is quite egregious, in theory, to mitigate short-sighted quarterly earnings hyperoptimization, couldn't a board simply tie equity incentives to performance targets and timeframes though?
Lip Bu Tan, for instance, has performance targets on a five year timeline, which are all negated if the stock falls below a certain threshhold in 3 years. [1]
Or, ever controversial Elon Musk, certainly has an (also egregious) $1 Trillion dollar pay package, but it has some pretty extreme goals over 10 years, such as shipping 1 million Optimus robots [2].
All in all, we can debate about the Goodharting of these metrics (as Musk is keen to do), but I feel boards of these public companies are trying to make more long-term plans, or at least moving away from tying goals to pure quarterly metrics. Perhaps we can argue about the execution of them.
Note: I own neither of these stocks and my only vested interest is buying the S&P.
Today, a CEO can turn in a few quarters of really solid earnings growth, they can earn enough to retire to a life a private jets. Back when CxO pay was lower, the only way to make that kind of bank was to claw your way into the top job and stay there for a decade or more.
The current situation strongly incentivizes short-term thinking.
With today's very high, option-heavy compensation a CEO making long-term investments in the company rather than cutting staff and doing stock buybacks is taking money out of his own pocket.
It's a perverse incentive.