An excellent explanation of how the share of corporate profits that once went to increased wages and innovation switched to corporate buybacks of executive shares.
The perverse incentive is that executives take most of their salary in shares. So, if we see a salary of $20 million, it’s 1 million in cash and 19 million in shares. The execu…
An excellent explanation of how the share of corporate profits that once went to increased wages and innovation switched to corporate buybacks of executive shares.
The perverse incentive is that executives take most of their salary in shares. So, if we see a salary of $20 million, it’s 1 million in cash and 19 million in shares. The executives have piles of shares they want to convert to cash. These corporate buybacks are not done on the open market. They first buyback executive shares and if there’s anything left over then to general shareholders.
Corporations were once absolutely prohibited from purchasing executive shares. It’s the ultimate form of insider trading. The executors are able to manipulate corporate results to goose up the price of the stock at the time of the buyback of their shares. Even a Trump supporter, SEC commissioner Robert J Jackson Jr., became alarmed at what he saw. He directed a study that showed that the stock prices were manipulated before a buyback of the executive shares. https://www.sec.gov/news/speech/speech-jackson-061118
It was under the Reagan administration that an SEC rule 10b – 18 permitted corporations to buy back executive shares if they met four very complicated provisions. When she was SEC commissioner, Mary Jo White said that the provisions were impossible to enforce so they were not. Executives were free to have their corporations buyback their shares without any restrictions. https://theintercept.com/2015/08/13/sec-admits-monitoring-stock-buybacks-prevent-market-manipulation/
Representatives García, Khanna, and Hoyle have introduced the Reward Work Act, which would ban the practice of stock buybacks completely. But this undertakes an unnecessary burden of banning all stock buybacks. The harm is not in the buyback, but in the insider trading.
So, the solution is not to seek probation of buy backs, but to eliminate the perverse incentive, the exemption (R 10b-18) and prohibit the executors from being able to cause the corporation to buy back their own shares. It would seem to be a better tactic to focus on exposing the insider trading aspect. Shareholders may defend the buybacks believing that they will benefit, but they rarely do.
An excellent explanation of how the share of corporate profits that once went to increased wages and innovation switched to corporate buybacks of executive shares.
The perverse incentive is that executives take most of their salary in shares. So, if we see a salary of $20 million, it’s 1 million in cash and 19 million in shares. The executives have piles of shares they want to convert to cash. These corporate buybacks are not done on the open market. They first buyback executive shares and if there’s anything left over then to general shareholders.
Corporations were once absolutely prohibited from purchasing executive shares. It’s the ultimate form of insider trading. The executors are able to manipulate corporate results to goose up the price of the stock at the time of the buyback of their shares. Even a Trump supporter, SEC commissioner Robert J Jackson Jr., became alarmed at what he saw. He directed a study that showed that the stock prices were manipulated before a buyback of the executive shares. https://www.sec.gov/news/speech/speech-jackson-061118
It was under the Reagan administration that an SEC rule 10b – 18 permitted corporations to buy back executive shares if they met four very complicated provisions. When she was SEC commissioner, Mary Jo White said that the provisions were impossible to enforce so they were not. Executives were free to have their corporations buyback their shares without any restrictions. https://theintercept.com/2015/08/13/sec-admits-monitoring-stock-buybacks-prevent-market-manipulation/
Representatives García, Khanna, and Hoyle have introduced the Reward Work Act, which would ban the practice of stock buybacks completely. But this undertakes an unnecessary burden of banning all stock buybacks. The harm is not in the buyback, but in the insider trading.
So, the solution is not to seek probation of buy backs, but to eliminate the perverse incentive, the exemption (R 10b-18) and prohibit the executors from being able to cause the corporation to buy back their own shares. It would seem to be a better tactic to focus on exposing the insider trading aspect. Shareholders may defend the buybacks believing that they will benefit, but they rarely do.