Home Views Management & Corporate Governance

CEOs goose their pay with buybacks

Peter Coy
Peter Coy12/27/2019 07:00 AM GMT+08  • 5 min read
CEOs goose their pay with buybacks
(Dec 27): Is it good or bad that US corporations are buying back their own shares? It is an important question, because buybacks have become the preferred way for companies to disgorge cash to shareholders. In 2018, Standard & Poor’s 500 companies bough
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

(Dec 27): Is it good or bad that US corporations are buying back their own shares? It is an important question, because buybacks have become the preferred way for companies to disgorge cash to shareholders. In 2018, Standard & Poor’s 500 companies bought back a record US$806 billion ($1 trillion) worth of shares, a 55% leap from the year before. They are on track to buy back about US$740 billion worth this year, the second most ever, according to S&P Dow Jones Indices senior index analyst Howard Silverblatt.

There are two lines of criticism. One is that buybacks are great for shareholders but bad for workers, because they fritter away money that should be reinvested in the business or paid to employees. This is the line taken by Democratic presidential candidates Elizabeth Warren and Bernie Sanders, who support legislation that would ban open-market stock buybacks. Sanders, together with Chuck Schumer, the Democratic leader in the Senate from New York, wrote in a Feb 3 opinion piece in The New York Times urging limits on share buybacks.

But you do not have to be a liberal Democrat to question current government policy on buybacks. A second, less familiar line of criticism is that they are not necessarily good for shareholders. Buybacks benefit corporate executives and directors, who often take advantage of the price jump when one is announced to sell some of the shares they have received through grants or options. Leading the charge for this cause is Robert Jackson, a Securities and Exchange commissioner who has been agitating for more than a year for his agency to schedule hearings on the issue.

×
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.