CEOs Get A Buyback Bonus

When companies buy their own shares, executives are quick to cash out

- Peter Coy

Is it good or bad that U.S. corporations are buying back their own shares? It’s an important question because buybacks have become the preferred way for companies to disgorge cash to shareholders. In 2018, S&P 500 companies bought back a record $806 billion worth of shares, a 55% leap from the year before. They’re on track to buy back about $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.

But you don’t have to be a liberal Democrat to question current government policy on buybacks. A second, less familiar line of criticism is that they aren’t 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’ve received through grants or options. Leading the charge for this cause is Robert Jackson, a Securities and Exchange commissioner who’s been agitating for more than a year for his agency to schedule hearings on the issue.