What makes more sense? If shareholders are compensating CEOs and the rest of the management team for how well they are managing the company, then there should be some metrics that are easy to agree upon on advance. All of them can be readily identified and tracked versus peers. Consider these five things on a relative basis to the business’s competitors:

• Changes in revenue and earnings

• Return on invested capital

• Development of long-term strategy

• Execution of current strategy

• Innovation and intellectual-property development

Share price isn't a very precise way of compensating for value delivered. Indeed, share price may be one of is the worst ways to judge an executive’s performance. It rewards executives for positive events beyond their control, and doesn't do an effective job of measuring the impact of management on a company’s overall performance. It transfers money from shareholders, the actual owners of a company, and gives it to management regardless.

In recent years, and especially after the financial crisis, many analysts and investors have recognized that most money managers deliver returns that are no better than -- and often worse than -- the market averages. The result has been the growing popularity of funds than minimize management costs while aiming to achieve returns that simply match the market.

There should be a similar reform in corporate pay policies; executives who deliver returns that match the market or industry should be compensated like low-cost service providers. It's long past due that this happens.

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