Ask Matt: Are CEOs obsessed with stock price?

— -- Q: Why are corporate officers so interested in the stock price of their respective corporations? How does the corporation benefit or lose from stock price increases or decreases?

A: It's a fair question. It's especially puzzling because companies don't instantly see a benefit from a rising stock price. A company's outstanding shares were already sold, sometimes decades ago, so the investors, not the company itself, benefit from a rising price.

Why then, do CEOs seem so interested in the stock price?

There are several reasons why officers and directors pay keen attention to the stock price, including:

•Validation of strategic progress. The stock price, as imperfect as it is in the short run, is the closest thing executives get in terms of a real-time report card on how well they are running the company.

Investors place their bets on whether the executive's strategy is a good one every second of the trading day, and use real money to express their opinion. CEOs probably can't help but peek at the stock price after a major company announcement to see what investors think. Also, if a stock price is rising, a company and its officers may not be as nervous about a shareholder uprising.

•Capital raising prospects. It's true the stock price reflects shares that the company already sold. But, the current stock price is a key input to many financial decisions a company might make.

For instance, a company can consider selling additional shares to raise money to pay for an acquisition or other major deal. If a company's stock price is high, relative to the market, that gives it power to make a relatively inexpensive deal using stock. Some companies, too, might issue stock to pay down more costly debt, which could boost future profitability.

•Selfish reasons. The stock price is often a key ingredient to how executives are paid. Most executives get a vast majority of their annual compensation in the form of stock-based rewards. If the stock price rises, so does the executives' personal payday. Additionally, many executive's bonuses are tied to the short-term performance of stock.

Most executives probably look at stock prices for all of the three reasons listed above. The stock price is just too immediate and compelling to ignore. But it's when executives get overly infatuated with the stock price that they may make mistakes. While enriching the investors in the short term is important, CEOs are also supposed to be thinking about how to position the company for well beyond their tenure.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz