Profits: The Real Power Player in CEO Compensation

When it comes to paying top executives, companies love to tie compensation to metrics like revenue growth and market share expansion. After all, these are clear indicators of a company’s size and reach. But while capturing market share can tell a story of growth, they’re not always the best measure of financial health. For example, Uber failed to return a profit for many years, finally turning profitable $1.887 billion in 2023, first time since 2018. While Uber’s focus on capturing market share has come at the cost of high operating expenses and continued financial strain.  If we’re looking for real, sustainable success, profitability should be front and center in CEO compensation. Why? Because profits are what ultimately keep the lights on, deliver shareholder returns, and create long-term value. 

It’s time we rethink the way CEOs are incentivized and make profits a key player. When profits drive CEO rewards, executives are encouraged to run tighter ships, build sustainable businesses, and steer companies through rough economic waters without veering off course.

Why Profit Should Be the Star Metric

The financial world loves big numbers, but profit is the number that actually matters in the long run. Companies that prioritize profits over pure growth can operate with more resilience, make savvy investments, and—most importantly—deliver lasting shareholder value. 

Profit = Staying Power

Profitable companies have staying power. They can weather market shifts, fund game-changing projects, and keep operations steady—all without running back to the capital markets for cash infusions. A perfect example? Apple. Apple’s commitment to profitability has allowed it to build a massive cash reserve that it can tap into whenever it wants to roll out a new product, make a strategic acquisition, weather an economic downturn, or even just ride out a pandemic. Apple’s approach to profitability, coupled with disciplined spending, has positioned it as a financial powerhouse capable of consistent reinvestment in R&D.

If we tie CEO compensation to profitability, execs are more likely to make decisions that reinforce this kind of long-term stability. Instead of chasing flashy growth numbers, they’ll focus on sustainable cost management, smart investments, and high-margin products—creating a safety net for the company and setting it up for future success.

Shareholder Value Thrives When Profits Are Prioritized

For shareholders, profits are where the magic happens. Consistent profitability not only builds confidence but also funds the things shareholders care about: dividends, stock buybacks, and reinvestments that boost share value. Companies that reward CEOs based on profit ensure that executives are driven to maximize earnings, enhance shareholder wealth, and focus on the bottom line.

Look at Costco, for example. Costco’s leadership has maintained a laser focus on profit-driven growth over simply maximizing revenue. By focusing on a profitable, efficient business model, Costco has consistently rewarded shareholders with dividends and reinvested in its own expansion, creating a cycle of success that enhances shareholder trust. Costco proves that profits provide not only financial stability but also a better return for investors.

On the flip side, companies that ignore profitability in favor of chasing revenue or market share can easily fall into the trap of overextending themselves. They might end up burning cash at an unsustainable rate, relying too heavily on external funding, or even issuing more equity, which dilutes shareholder value. When CEOs are rewarded based on profits, they focus on delivering steady, real returns—not just inflated revenue figures.

Profits Keep the Efficiency Game Strong

When companies base CEO incentives on revenue or market share alone, it can create a “growth-at-any-cost” mentality. This can lead to excessive spending, waste, and inefficiency, where executives spend freely to hit targets without checking if those growth numbers are actually profitable. A profit-based incentive structure, however, encourages CEOs to operate with efficiency and discipline. They’ll think twice before investing in untested ventures and focus on initiatives that drive returns.

Take Southwest Airlines. Southwest Airlines is a strong example of smart, disciplined operations. Renowned for its focus on cost management and profitability, the airline has built a reputation for staying competitive in the highly challenging airline industry. However, even a well-oiled machine like Southwest isn’t immune to pressure—recent declines in profits have prompted the company to reevaluate parts of its business model, highlighting how essential profitability is for strategic decision-making. When CEOs are incentivized to prioritize profits, they’re encouraged to operate efficiently and make thoughtful, long-term investments. It’s not about cutting corners; it’s about ensuring every decision supports sustainability and success, especially in mature markets where margins can make or break a business.

Profits Build Strong Business Fundamentals

While it’s fun to see flashy revenue numbers and massive market shares, these don’t always tell the full story. A company with huge revenues but slim or nonexistent margins isn’t built for the long haul. It’s a bit like buying a sports car with no fuel tank—it might look good, but it won’t take you far. By focusing on profits, companies establish strong fundamentals, ensuring they’re truly viable and not just skating by on flashy numbers.

Amazon is a great example of a company that has strategically shifted its focus over time. While Amazon initially chased market share, it eventually zeroed in on profitability, particularly through its high-margin AWS (Amazon Web Services) division. By introducing profits into the equation, Amazon has balanced revenue growth with sustainable profitability, giving the entire company a much stronger financial foundation. A focus on profitability demonstrates to stakeholders that a company is serious about building a financially sound enterprise.

Tackling the Short-Term Trap: Making Profits a Long-Term Play

Critics might argue that a profit-driven focus could push CEOs to prioritize short-term gains over long-term growth. But there are ways to tackle this challenge. Instead of using annual profit targets, companies can set multi-year profit goals to encourage CEOs to think about profitability as a long-term objective. When profit goals are spread out over several years, executives are incentivized to build strategies that pay off over time rather than chasing quick fixes.

Tesla’s CEO compensation plan, for instance, is structured around both profit and growth milestones, but with a long-term perspective. Elon Musk’s pay incentives hinge on hitting production, revenue, and profit targets in a way that emphasizes future performance. This model proves that profitability can coexist with growth, pushing leaders to think both strategically and sustainably.

Conclusion

There’s no doubt that revenue growth and market share matter, but profitability is the metric that really separates the wheat from the chaff. Profits indicate financial health, promote efficiency, and deliver shareholder value in ways that other metrics can’t. By making profits a central component of CEO compensation, companies set the stage for balanced, sustainable success.

Profits motivate CEOs to run lean, make smart investments, and ensure the company isn’t just growing—it’s thriving. A profit-centered approach creates value for shareholders, strengthens business fundamentals, and keeps companies resilient in the face of economic challenges. So while it’s tempting to chase revenue or market share, the real power lies in prioritizing profits and rewarding CEOs for building businesses that last. With profits in the driver’s seat, companies can navigate the fast lane of business growth without losing their way.