No, this is not a riff on Hamlet’s soliloquy. It’s about the current kerfuffle (one of my favorite words) about stock buybacks. In case you’ve not heard, some (but not all) of the concerns about stock buybacks are as follows:
- Plowing all that cash into buying back stock means that it’s not going into plant and equipment, R&D or other things that facilitate longer-term growth and job creation.
- Companies are using the windfall from the 2017 tax act to buy shares back rather than to make investments that will create jobs and longer-term growth.
- Stock buybacks artificially inflate stock prices and earnings per share, which contributes to or results in additional (i.e., excessive) executive compensation.
- By reducing the number of shares outstanding, buybacks mask the dilutive effects of equity grants to senior management.
And now there’s another concern. Specifically, in a recent speech, new SEC Commissioner Jackson announced that stock buybacks are being used by executives to dispose of the shares they receive in the equity grants referred to above. And one of his proposed solutions is that compensation committees engage in more active oversight – or, rather, that compensation committees should be required to engage in more active oversight – of insider trades “linked” to buybacks.