How Relative TSR is a Bit Like Cough Medicine - a bedtime story for executive compensation professionals.

Stickman RxTSR is Cough Medicine

Stickman RxTSR is Cough Medicine

Once upon a time in a land pretty darned close to where you live... Little ExecComp wasn’t feeling well. Whatever ailed him had been lingering for a long time. While sometimes he felt great, other times he coughed so badly he feared he would be quarantined. His mom and dad, Mr. and Mrs. Board, had tried a long list of remedies including herbal equity baths, expensive cash showers and hot packs filled with perqs and deferred release solutions. Nothing seemed to work.

One night while watching late night TV, the Boards saw an advertisement from a guy with a loud voice and catchy accent. The announcer, a man named Dr. Actuary, PhD., claimed to have invented a wonder drug that would make hacking coughs go away. He presented happy customers; none of whom had a cough. He showed statistics, charts and results from scientific studies. Everything seemed to support his fantastical elixir.

He called his potion “RxTSR” and claimed it would cure ExecComp’s cough. In fact, it would make the growing boy the healthiest kid on the block and help him reach his ultimate potential. His testimonials made it clear that all of the coolest, best kids were taking RxTSR regularly. The Boards were excited. “We have finally found a solution to our problems”, they shouted.

Just to be sure, they called their doctor, Dr. ISS. Dr. ISS agreed that RxTSR was a wonder drug. In fact, she claimed that she prescribed it to nearly everyone. “Too much of a good thing is a great thing”, said Dr. ISS.

The Boards called Dr. Actuary and ordered a three-year supply of RxTSR. When they got it, they were surprised that it came with very few instructions. The bottle simply said, “Use as much as you think you need, whenever you think it is needed but, try not to use too much more than everyone else does.” The Boards didn't know how much or how often anyone else used, so they simply made their best guess.

At first little ExecComp seemed to be getting healthier. His cough started to fade and he seemed to be performing better. Figuring that if a little was good more would be better, the Boards gave ExecComp even more. Now he seemed a bit giddy. The solution seemed to make him feel better than good. He laughed more often and almost never coughed, but he also made some not too bright decisions. Interestingly, he seemed to start coughing whenever he wanted a bit more RxTSR.

The Boards noticed that Dr. ISS gave full support their approach. They also wanted to make ExecComp happy. So, they gave ExecComp bigger and bigger doses of RxTSR. They were surprised when ExecComp started performing worse while at the same time demanding more of the magic elixir. Even more troubling, ExecComp started showing symptoms of far worse problems! It turns out that RxTSR in small doses was helpful. RxTSR in larger doses worked almost like a hallucinogen and in very large doses RxTSR was simply poison.

While it took a few years, the Boards, Dr. ISS and Dr. Actuary, PhD finally learned that, like any wonder solution, RxTSR needed to be used in moderation and only with close oversight and constant communication regarding its effect. They also learned that many of their legacy solutions worked better when combined with RxTSR and that each one of ExecComp’s peers found a slightly different combination of solutions that worked best for them. Finally the cough went away and little ExecComp became truly healthy and was able to reach his potential. He made everyone around him prosperous and happy. And, they all lived happily ever after.

For more on TSR (Total Shareholder Return), please read "Beyond TSR"

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