Executive compensation is decided on short-term bonuses.

The reason executive compensation is decided on short-term bonuses is that mutual fund manager performance is decided on short-term bonuses.

Mutual fund manager performances is decided on short-term bonuses because:
1. Mutual funds are scored in the newspaper and on-line on a daily basis, and are judged by overall daily performance.
2. People invest mutual funds with investment companies that are paid on a per trade basis. Thus the more different funds you invest in, the more money they make. In effect, having a volatile fund portfolio makes them more money.

Finally, the biggest reason why CEOs do these kinds of trades: People are irrational investors. They do not organize to stop groups of people from investing contrary to their own interests. This makes it profitable for organized groups of people to exploit the gaps in the system and to perform trades in their best interest and not the investors.

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• Citation - Authored by: nerd6 on Thursday, July 19 2012 @ 10:43 PM EDT
  • Citation - Authored by: Anonymous on Friday, July 20 2012 @ 04:58 AM EDT