Re:GM’s Stock Buyback Is Bad for America and the Company
by GFischer on Friday March 13, 2015 @07:54AM
(#9196675)
However, stock repurchases are preferred by executives because they're either awarded stock options or have compensation tied to the stock price, as the author mentioned in an earlier piece (linked there):
"Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees."
"Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price"
"Jolls finds that the average executive in her sample of firms with repurchase activity enjoyed a $345,000 increase in stock option value as a result of the repurchase activity. "
Re:GM’s Stock Buyback Is Bad for America and the Company
by eru on Friday March 13, 2015 @07:44PM
(#9200798)
Yes, any stock options or compensation tied to stock price should account for these effects of repurchases. (Ask any lawyer / accountant how to do it, it's not magic.)
https://hbr.org/2014/09/profits-without-prosperity
"Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees."
"Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price"
http://www.nber.org/digest/nov98/w6467.html
"Jolls finds that the average executive in her sample of firms with repurchase activity enjoyed a $345,000 increase in stock option value as a result of the repurchase activity. "
http://www.wsj.com/articles/buybacks-can-juice-per-share-pro...