CEOs are hugely expensive – why not automate them?

Re:CEOs are hugely expensive – why not automate them? by hervature on Monday April 26, 2021 @11:49AM (#26943855)

I find it funny that people throw out decades of history. Options contracts, as you propose, introduce the incentive for extreme risk taking because doing "normal boring" things literally doesn't pay. It's one of the main arguments for stock compensation because if the company does poorly, the CEO directly feels it where it hurts (the wallet).

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Re:CEOs are hugely expensive – why not automate them? by sn41 on Monday April 26, 2021 @12:11PM (#26944213)

And so they go for stock buyback strategies. Reduce the supply, the stock skyrockets, cash in, leave.

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Re:CEOs are hugely expensive – why not automate them? by MattGaiser on Monday April 26, 2021 @12:18PM (#26944323)

You need profits for stock buybacks. Buybacks are just superior to dividends as a way to return capital.

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Re:CEOs are hugely expensive – why not automate them? by hammock on Monday April 26, 2021 @12:31PM (#26944488)

>You need profits for stock buybacks.

You merely need capital. Lots of buybacks are funded by debt

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Re:CEOs are hugely expensive – why not automate them? by xadhominemx on Monday April 26, 2021 @05:11PM (#26948204)

Leveraged buybacks reduce the multiple. It’s not a cheat code to make your stock go up.

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Re:CEOs are hugely expensive – why not automate them? by enos_feedler on Monday April 26, 2021 @01:10PM (#26945056)

This is pretty insane actually. Is there a common metric that captures which companies are funding buybacks with debt? or is it easy to figure out? I am not a finance person.

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Re:CEOs are hugely expensive – why not automate them? by hammock on Monday April 26, 2021 @01:54PM (#26945634)

No. But it's generally common knowledge. Here are some articles

https://fortune.com/2019/08/20/stock-buybacks-debt-financed/

https://www.cnbc.com/2019/07/29/buybacks-companies-increasin...

https://crsreports.congress.gov/product/pdf/IF/IF11393

From the last one: "Data on the percentage of buybacks that are leveraged are inconsistent. For example, the bank J.P. Morgan Chase reported that leveraged buybacks accounted for 14% of overall buybacks during 2018, which it said was the lowest percentage since 2009. But Yardeni Research, a respected securities market research firm, reported that they were 56% of the total."

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Re:CEOs are hugely expensive – why not automate them? by clairity on Monday April 26, 2021 @02:19PM (#26945996)

this is another one of those things you learn in business school, a commonly disdained yet imminently useful education, particularly for engineers.

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Re:CEOs are hugely expensive – why not automate them? by georgeecollins on Monday April 26, 2021 @01:21PM (#26945198)

If the long term debt increases during a period of buybacks, particularly more than net income, than yeah this is the case. And yes that happens.

BTW, this is exactly what private equity companies do when they take a company private. They borrow a lot of money to buy the outstanding stock. Often the company they are buying with debt (held by the company) is not profitable. And sometimes the company goes bankrupt.

So yes this happens.

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Re:CEOs are hugely expensive – why not automate them? by sokoloff on Monday April 26, 2021 @01:53PM (#26945622)

With interest rates as low as they are (on both government backed and corporate investment grade bonds) and a reasonable forecast of higher inflation ahead, why shouldn't companies borrow for a variety of corporate activities, both operational and treasury?

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Re:CEOs are hugely expensive – why not automate them? by imtringued on Monday April 26, 2021 @06:26PM (#26949062)

They should, and they should use the money to do the corporate activities you mentioned.

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Re:CEOs are hugely expensive – why not automate them? by imtringued on Monday April 26, 2021 @06:24PM (#26949043)

A lot of the companies getting into debt have their own cash reserves.

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Re:CEOs are hugely expensive – why not automate them? by Griffinsauce on Monday April 26, 2021 @03:49PM (#26947151)

> funded by debt

Or recently, government support packages.

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Re:CEOs are hugely expensive – why not automate them? by Bayart on Monday April 26, 2021 @04:53PM (#26947990)

Which is debt.

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Re:CEOs are hugely expensive – why not automate them? by andromeduck on Monday April 26, 2021 @12:24PM (#26944388)

Dividends ought to not be at a tax disadvantage over capital gains for this reason.

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Re:CEOs are hugely expensive – why not automate them? by wrigby on Monday April 26, 2021 @12:31PM (#26944489)

Are they not? I thought qualified dividends (that is, dividends on stocks that have been held long enough to qualify for long-term capital gains) are taxed at the long-term capital gains rate.

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Re:CEOs are hugely expensive – why not automate them? by toast0 on Monday April 26, 2021 @01:28PM (#26945274)

Dividends are taxable at the time of distribution; the price effects of a buyback are taxable when shares are sold [1], and delayed taxes are preferable to immediate taxes.

[1] unless the holder has elected for trader tax treatment, in which case shares are marked to market at the end of the tax year

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Re:CEOs are hugely expensive – why not automate them? by freeone3000 on Monday April 26, 2021 @12:58PM (#26944884)

You still have the one year of dividends taxed at the short-term rate, since dividends are taxed on disbursement whereas capital gains is only taxed on stock sale.

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Re:CEOs are hugely expensive – why not automate them? by MattGaiser on Monday April 26, 2021 @12:26PM (#26944422)

The problem is also unrealised gains vs realised ones. I don't pay any tax on the stock price increasing. I have to pay tax on dividends.

If I don't need the money, I can just let it continue to grow tax free.

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Re:CEOs are hugely expensive – why not automate them? by xyzzy21 on Monday April 26, 2021 @01:59PM (#26945713)

Strictly no. You need "free" zero interest money from the Fed! That's how MOST stock buy-backs are financed - it going onto the balance sheet as debt which someday will bite them.

This is the shitty side of many modern CEOs. But the legal and tax incentives combined with Wall Street demands create the environment for it.

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Re:CEOs are hugely expensive – why not automate them? by hctaw on Monday April 26, 2021 @12:38PM (#26944576)

I think most criticism of buybacks would go away if we eliminated the capital gains tax and treated income equally regardless of where it comes from.

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Re:CEOs are hugely expensive – why not automate them? by imtringued on Monday April 26, 2021 @06:22PM (#26949019)

The only reason I dislike stock buybacks is that they encourage "riding" the bull market. Number goes up, people buy into the company, company does a stock buyback to keep the momentum, numbers go up even further, even more people buy into the stock, none of them caring about the actual company they are buying into, they just see the numbers.

Dividends are boring, we need more boring companies doing boring productive work.

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Re:CEOs are hugely expensive – why not automate them? by anonymouse008 on Monday April 26, 2021 @12:14PM (#26944247)

Replace option contracts with RSUs or a vesting cliff and see how closely that resembles the VC fiefdom

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Re:CEOs are hugely expensive – why not automate them? by pkdpic_y9k on Monday April 26, 2021 @12:20PM (#26944344)

this all sounds a lot like CEO talk to me...

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Re:CEOs are hugely expensive – why not automate them? by SerLava on Monday April 26, 2021 @12:41PM (#26944620)

I mean

Just make a contract to pay them a decent amount of the company doesnt go tits up

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