Recent economic stimulus legislation prevents companies receiving taxpayer loans from employing stock buybacks. The popular perception is that buybacks are used by greedy executives to increase the value of their company stock holdings. It’s true, nearly 60% of total executive compensation is in the form of stock such a restricted shares, options, incentive payments, etc. All contain some risk in that the expected value may not be realized. Just ask an executive about the last few months or what will happen to company performance or stock prices if we have a recession.
Or, ask me. I accumulated shares in my former employer over many years through options and various awards. Since January their value has dropped over 40%, poof.
While buying back shares of stock will increase the value of company’s remaining shares and increase earnings per share simply because dividing fewer shares into total earnings increases the per share amount, that result benefits all shareholders large and small, individual investors, mutual fund investors, 401k, IRA investors and even recipients of pensions as funds are invested in the stock market.
To mischaracterize buybacks as an evil tool of greedy executives is unfair and politically motivated. Executive compensation is insignificant as far as workers and consumers are concerned.
No doubt buybacks can be misused, they can be a tool to mask a companies financial troubles, to mask poor management, but that’s an issue for shareholders to deal with and will soon come to light in any case.
Take look at this article on Investopedia for a better understanding of buybacks.
“In the same letter, Mr. Schumer said the legislation included a ban on stock buybacks for any company receiving a government loan from the stimulus package. The ban lasts the term of the government assistance plus 1 year.” Source: Wall Street Journal 3-25-20