Stock repurchases and incentive compensation
Compensation contracts that link payoffs to earnings per share (EPS) provide executives with direct and potentially powerful incentives to manage EPS in dividends or using them to repurchase stock, as the value of their call options firms where incentive compensation accounts for the majority of management 22 Feb 2019 The conventional thinking about stock buybacks is that when EPS targets for incentive compensation to reflect the reduction in shares from a Equityholders have an incentive to buy back stock after employment contracts have been signed because repurchases increase compensation sensitivity to firm
Executive Compensation and Stock Buybacks: The Pros and the Cons. By James F. Reda. The effect of a stock buyback on an execu- tive incentive program will
11 Jun 2018 Why stock buybacks may deepen income inequality That's why a big chunk of executive compensation is in stock that can't be unloaded right away. It's supposed to give managers an incentive to do what's best for the long 8 Feb 2018 And at a time when the CEO-to-worker pay gap hovers near 300-to-1, stock- based compensation is powerful incentive for CEOs to use buybacks 7 Sep 2017 Executive incentives are out of date. propose new methods of compensation for the 21st century that cannot be so easily manipulated the past on this column, many executives inflate their own pay through stock buybacks. 23 May 2017 tation, long-term incentive awards become the largest component of CEO compensation. The reduced possibility of new or repriced stock 9 May 2017 extra stock for employee incentive compensation plans; and (iv) increased liquidity. Of these four, the most significant driver of repurchases is 20 Feb 2016 operating and stock performance. Increased CEO incentive compensation after the repurchase announcement is one possible use of greater 12 May 2014 $15 million of its outstanding common stock, which is intended to offset the dilutive effect of share-based employee incentive compensation.
8 Mar 2019 Buybacks have gotten an unfair rap in the U.S., according to a defense of the Incentive compensation doesn't drive repurchases, Kostin says.
A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. A. Improved Disclosure Around Initiation of Repurchases. The Stock Buyback Reform and Worker Dividend Act of 2019, The Stock Buyback Disclosure Improvement Act of 2019, and the SEC Approval Act all require firms to make certain disclosures before commencing a stock buyback. Depending on the bill, these disclosures can include the rationale for the repurchase, whether any executive is purchasing or is permitted to sell stock during the pendency of the repurchase, and the source of funds for The plot twist. Despite the criticism, stock buybacks don’t seem to be driven by company executives’ desires to boost earnings per share and meet their own incentive compensation targets, according to David Kostin from Goldman Sachs. In a report released on Friday, In Stock Repurchases and Incentive Compensation(NBER Working Paper No. 6467) , Christine Jolls suggests that part of the explanation for this trend may lie with the increased use of stock options in executive compensation packages. Now extremely popular across a wide range of firms, stock options give the holder the right to purchase stock at a specified price. With the use of stock based compensation increasing, the compensation professionals, financial planners and employees involved in these plans need to understand the strategies that can be employed
Author(s): Christine Jolls. 1998 Abstract: A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages.
compensated with restricted stock or stock options, shareholders may engage in opportunistic share repurchases. Equityholders have an incentive to buy back stock after employment contracts have been signed because repurchases increase compensation sensitivity to –rm cash ⁄ows and create stronger incen-tives for –rm employees and executives. The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. A. Improved Disclosure Around Initiation of Repurchases. The Stock Buyback Reform and Worker Dividend Act of 2019, The Stock Buyback Disclosure Improvement Act of 2019, and the SEC Approval Act all require firms to make certain disclosures before commencing a stock buyback. Depending on the bill, these disclosures can include the rationale for the repurchase, whether any executive is purchasing or is permitted to sell stock during the pendency of the repurchase, and the source of funds for The most likely culprit is a Financial Accounting Standards Board (FASB) rule change in the early 1990s that made stock options issued as a form of compensation tax deductible for corporations.
stock repurchases to dividends due to tax incentives and because compensation in stock options than managers in non-financial firms (see Houston and
Compensation contracts that link payoffs to earnings per share (EPS) provide executives with direct and potentially powerful incentives to manage EPS
Keywords: Stock buybacks, stock options, unclear accounting rules, corporate governance, agency costs, Stock repurchases and incentive compensation. 5 Aug 2018 The Republican tax cuts have put stock buybacks in the spotlight. of them to sell shares they're rewarded as part of their compensation. 27 Jun 2018 First, stock buybacks increase the value of long-term performance in determining senior executive incentive compensation or eligibility for 11 Jun 2018 Why stock buybacks may deepen income inequality That's why a big chunk of executive compensation is in stock that can't be unloaded right away. It's supposed to give managers an incentive to do what's best for the long 8 Feb 2018 And at a time when the CEO-to-worker pay gap hovers near 300-to-1, stock- based compensation is powerful incentive for CEOs to use buybacks 7 Sep 2017 Executive incentives are out of date. propose new methods of compensation for the 21st century that cannot be so easily manipulated the past on this column, many executives inflate their own pay through stock buybacks.