Towards the end of any long-term incentive program for CEOs, the short term awaits – but it doesn’t need to be bad news

After the financial crisis, shareholders and regulators have become increasingly concerned about short-term pressures in business decision-making. Moqi Xu examines two potential remedies that firms use to set long-term incentives and what happens when they eventually run out. When long-term compensation eventually becomes available to executives, it rewards them for extremely short-term behaviour, such as timing news releases for their own personal benefit. When long-term employment contracts come close to the renewal decision, by contrast, executives are exposed to the scrutiny of the board, which forces them to focus and commercialize long-term investments previously made.