“Quarterly capitalism” is a new focus of Hillary Clinton’s presidential campaign that could pick up even more steam with recent market turmoil. “It’s easy to try to cut costs by holding down or decreasing pay and other investments to inflate quarterly stock prices, but I would argue that’s bad for business in the long run,” Clinton said recently at The New School in New York. Some are saying this might be her way of sounding populist while maintaining support in the business community. But one need not support all of Clinton’s policy prescriptions, such as higher capital gains taxes, to agree with her that public companies racing to “make the quarter” can be a problem.
Hillary has a point on this one, but her populist approach is not the answer. Companies don’t hold down or decrease pay on a quarterly basis although they may do some rather short-sighted detrimental things to meet earnings projections, even layoffs, but generally not quarterly. How is changing capital gains taxation going to change the focus of companies when they are required to file quarterly reports by law?
In all my years doing compensation I never heard of incentive pay that was based on quarterly earnings. Rather they are based on annual and longer periods. Perhaps companies should stop issuing earnings estimates altogether.
Hillary may have identified a valid issue, but her analysis of the impact is flawed. And her approach is merely higher taxes with little impact on company behavior. Here is a good analysis by the Tax Foundation