In as much as the bottom line for having a company is to make profit, having a sustainable corporate environment is equally important. Stake holders of every business feel more at ease knowing that the company they have invested in is stable and will be able to make them profit years to come. For this to be attained there has to be a balance between the company’s long term goals and short term goals. Most long term goals include the company buying assets and investing in other companies. This ensures that it is able to stand even if the markets are not doing so well. Most short term goals are incentive based. That is, if the company does well, then the investors and the employees stand to gain. Learn more:

The beauty of having incentive based payment structures is that the company’s EPS, earning per share, goes up. The EPS is the determining factor when it comes to investors either buying a particular company’s shares or selling. Therefore, by having an attractive EPS, more people invest in the company. It also enables the company to give its employees very good incentives. Because of the benefits that come with having EPS as a payment structure, many companies over emphasise on it and give little attention to their long term goals. Some CEOs have also tried skewing financial results to have favourable EPS presented to investors.

Financial experts who oppose EPS say that the disadvantage it presents outweighs the advantages it has. Since incentive based financial structures give no room for the investors to judge whether the company is making profit or not, the executives have too much power in this. Only the CEO can say whether they are making profit or not thus giving a lot of room for alterations. Since EPS is based on the market prices, it is too unstable; it changes with the market condition.

Jeremy Goldstein, partner at Jeremy L. Goldstein & Associates, LLC, says the best way forward is not to do away with EPS despite its disadvantages. The best way forward is to find a middle ground between the two. Companies should give equal attention to both their short term and long term goals. This will see them make profit as well as have a sustainable corporate environment. To ensure that the EPS presented in the market is accurate, companies can come up with policies that will help keep the executives accountable to other shareholders.

Jeremy Goldstein is the founding partner at partner at Jeremy L. Goldstein & Associates, LLC. He has been involved in some of the largest corporate transactions including the acquisition of Goodrich by United Technologies and the Dow Chemical Company/Rohm and Haas Company. He has been around long enough to know where most corporate problems begin and how they end in court.