Some executives are compensated with RSU's. Some with options. If you're negotiating compensation and it's options, you'll take into account whether the company does buybacks or dividends when comparing offers.
In the end the total package is the total package. So I just don't see anything "wrong" here.
Then any regulations should focus on them.
Why should I, as a 'retail investor', be punished for return on capital methods because of the chicanery of executives?
I'm just going to DRIP any dividends anyway (until retirement) since I don't need income now. I want buybacks because that way I do not have a tax event that has (tax) drag on returns.
Edit: sorry about that, I get it now after thinking through it more.
Let's say the stock is truly worth $100 (assuming we could figure that out). Then if the company does buybacks, the stock trades at $100 - great for the executive with stock options. However, if the company pays dividends, then the stock price is reduced by the expected value of those dividends. So total expected value is the same, and long term executive comp is the same because they get the dividends as well, but short term they would prefer the buyback because of the higher stock price. They only benefit the same from dividends if they have a long term view.
If I pay a $1 ps dividend, then the share price should halve, and the share owners get $1 each.
If I buy back 50 shares, at $2 each, there will be 50 shares left at a value of $2 each. But now my earnings/share goes up as if by magic, and my options are worth more than in the dividend case.
Also capgains vs income tax yada yada
That's not correct. The EPS increase is offset by reduction in company value due to less cash. https://business.financialpost.com/opinion/stock-buybacks-ar...
The options bit is a slight fiddle, although empirical evidence supports it.
I do not want to ban buybacks, but now I at least understand an argument for doing so.
But the way the cash is transferred matters, and it has second order effects. Specifically, as it impacts stock options.
Executives tend to be compensated with options. The more the stock goes up, the richer they get. Distributing $X in dividends should provide an equal total return to the average shareholder as spending $X on a buyback, but that buyback will do it by pushing up the share price.
As the share price goes up more and more, execs with options have disproportionately more to gain than the average shareholder. They have a leveraged exposure to the price!