According to this article in the Journal of Finance, CEOs and other top managers should be owners in the company that they manage. This makes perfect sense if the company does well and stock prices go up they make even more money besides the basic paycheck. We just now have actual proof and data to support this claim. This is great news. Companies should pay attention and if they want to increase shareholder value and reduce costs they should switch payment to stock grants or options. They could also look to require the top managers have to own a part of the company.
This would be pretty much impossible to force managers to own shares but would be an interesting idea. At least with that managers could never turn their back on the company without hurting their own wealth.
Also with this knowledge, we savvy investors should look to see if management owns shares in the company and if they have sold recently. If the managers are selling the company it might reduce trust from managers no longer believing in the company. If they have bought the company and are continuing to buy shares it will probably portend that the company will be doing really well and the managers are going to perform better. Now sometimes it does not work out as cut and dry but overall a good rule to follow. Managers buying shares is a good omen and selling shares probably means you should get out of the stock.
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