There’s renewed talk in the news about ending the requirement for public companies to report quarterly earnings. At first glance, the commentary makes it sound like a step toward solving our short-term obsessed investment culture. But the reality is more complicated. Quarterly reporting for many companies, especially small firms, remains a way to gain visibility with an ever-expanding base of retail investors. It’s not the villain it’s often made out to be, nor is ending it a silver bullet to combat short-termism.

The real culprit is misaligned incentives. Whether or not companies file earnings every three months, management will continue to chase short-term optics if their pay is tied to them. What matters more than the cadence of reporting is the design of compensation systems. Rather than debating disclosure frequency, we should be pressing boards to reward true stewardship over financial engineering. 

Transparency every quarter can coexist with incentives that look out three, five, or even ten years. That’s how short-termism is addressed: not by going silent, but by making sure the scorecard reflects the horizon of real value creation.

How We Evaluate Executive Compensation

Context Matters

Executive compensation is one of the more powerful, and sometimes underappreciated, levers in shaping corporate behavior. The way leaders are paid has direct implications for how they allocate capital, balance growth and discipline, and prioritize short-term gains versus long-term value creation.

There is no one-size-fits-all approach: metrics that are effective in one business model can be irrelevant—or even harmful—in another. For example, in asset-light businesses, where returns on capital are structurally high (think: most software businesses), return-based metrics may add little value on their own. In those cases, growth-oriented metrics can be more meaningful, but they should be paired with some measure of efficiency such as margins or cash flow to ensure that growth is pursued responsibly. By contrast, in acquisition-driven models, return on capital hurdles are essential to discourage empire-building and ensure that capital is deployed productively.

We look for incentive systems that are flexible and context-dependent, reflecting what management can influence and that align with the core drivers of shareholder value for that specific business.

The Limits and Best Use of Metrics

Every compensation metric has its shortcomings. Return on invested capital, total shareholder return, free cash flow, and adjusted earnings per share can all be gamed or distorted, particularly over short time horizons. Accounting choices, timing of investments, and reliance on “adjusted” numbers can all undermine the intent of a metric.

Key metrics and their pitfalls:

• Return on Invested Capital (ROIC): This measures how much profit a company earns for each dollar invested in the business. It’s useful because it shows how efficiently management deploys capital, but it can look artificially low in the early years of an investment.
• Total Shareholder Return (TSR): This combines stock price appreciation with dividends. It reflects investor perception and long-term value creation, but in the short run it can be influenced by market sentiment or financial engineering.
• Free Cash Flow (FCF): The cash left after paying for operations and necessary investments. It matters because cash ultimately funds dividends, debt repayment, and reinvestment. But FCF can be temporarily boosted by cutting back on needed investments.
• Adjusted Earnings Per Share (Adjusted EPS): Reported earnings that remove certain costs or “one-time” items. While adjustments can provide clarity, they are often overused and can obscure the true economics of the business.

This doesn’t mean metrics are useless—far from it. But they work best when they are straightforward, transparent, and understood in context. Simplicity and clarity often matter more than false precision.

Long-Term Alignment: Ownership and Time Horizons

If there is one principle that rises above the rest, it is this: ownership is the strongest form of alignment. When executives hold a meaningful portion of their wealth in company stock, their perspective naturally shifts closer to that of long-term shareholders.

Constellation Software offers a compelling example. Their plan requires staff to use a portion of cash bonuses to purchase shares, with long lock-up periods. Senior executives are required to accumulate even larger holdings. This structure turned a public company into something resembling an employee-owned firm, creating alignment that no set of performance metrics could match. In that spirit, we prefer to see senior leaders required to hold multiples of their compensation in stock, ideally with multi-year holding requirements.

Value creation compounds over years, not quarters. The best incentive systems lengthen the horizon—three to five years at minimum—rewarding management for building durable value that lasts well beyond a single reporting cycle.

Quality Over Quantity

Badly designed incentives can do more harm than good. Tying rewards to revenue growth alone can push acquisitive companies into empire-building. Linking pay too tightly to total shareholder return can encourage stock price management rather than sound capital allocation. Even return on capital metrics can backfire if applied too narrowly, penalizing companies for upfront investments that deliver strong payoffs over time.

Good systems reward the quality of growth, not just the quantity. They balance financial discipline with strategic flexibility, recognizing that not all value creation shows up neatly in a single year’s numbers.

The Role of Boards and Culture

No incentive system operates in a vacuum. A strong, independent board is essential to interpret results, exercise judgment, and hold management accountable in ways that no formula can replicate.

Just as importantly, compensation design cannot substitute for executive integrity, competence, and culture. If we only trust management because of the guardrails in their incentive plan, we’re probably investing in the wrong company.

What We Like to See in Executive Compensation

• Meaningful ownership requirements that put real “skin in the game.”
• Long-term vesting and holding periods that reinforce patience and long-term thinking.
• Metrics tied to true value drivers such as return on capital, free cash flow, and GAAP operating margins, rather than overly adjusted figures.
• Simplicity and transparency, with metrics that are clear and consistently reported.
• Willingness to engage with shareholders, listening to feedback and evolving frameworks where appropriate.

Closing Thoughts

The debate over quarterly earnings reporting can be seen as a distraction from a real issue: how companies incentivize their leaders. Quarterly updates can support transparency and accountability, but only if paired with compensation systems that reward long-term value creation. We believe that true alignment comes from meaningful ownership, long-term metrics, and a culture of stewardship, ensuring that the capital our clients have entrusted to us is managed for enduring results, not just the next quarter.