January 15, 2016
Stock Repurchases: Relationship With Executive Pay
– Broc Romanek, CompensationStandards.com
Here’s the teaser from this Pay Governance memo:
The past year has seen extensive criticism of share buybacks as an example of “corporate short-termism” within the business press, academic literature, and political community. The critics of share buybacks claim that corporate managers, motivated by flawed executive incentive plans (stock options, bonus plans based on EPS, etc.) and supported by complacent boards, behave myopically and undertake value-destroying buybacks to mechanically increase their own reward. In turn, so the criticism goes, the cash used for share buybacks directly cannibalizes long-term value-enhancing strategies such as capital investment, research and development, and employment growth, thereby damaging long-term stock price performance and the value of US markets.
Pay Governance has conducted unique research using a sample of S&P 500 companies over the 2008-2014 period that brings additional perspective to this debate.