Executive compensation is decided on short-term bonuses.
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
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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