Comment by ac29 2 days ago
> turn to the government to finally build in some proper labor laws and other obvious controls (how about re-banning stock buybacks?)
What would banning stock buybacks accomplish? Companies can still return capital to shareholders in the form of dividends.
Even worse for non-American stockholders of American companies - the IRS charges a 30% foreign withholding tax on dividends. If you ban stock buybacks in favour of dividends, it’s a big tax increase on foreigners, so US stocks lose a whole pile of value for American stockholders when foreigners dump American equities until the ROI equalizes. (Roughly 20% of US equities are foreign-owned.)
Dividends don't grow the stock as quickly. They can and will do that, but the goal is to change the incentive structure back to long term growth and not "stock buyback and dip from company in a year".
There is no evidence to indicate buybacks reduce long term incentives for executives compared to dividends.
If anything, all the businesses with the most long term growth have done the most buybacks because they are paying the employees in stock, which employees gladly accept because they bet the business will have long term growth.
And executive compensation is not vested until business targets are met a few years in the future.
> There is no evidence to indicate buybacks reduce long term incentives for executives compared to dividends.
If I am bonused on earnings per share, and I have a button to increase earnings per share mechanically (without needing to increase revenue or decrease costs), why wouldn't I push that button?
Can you share some evidence around your statement? i.e. "There is no evidence to indicate buybacks reduce long term incentives for executives compared to dividends."
> If I am bonused on earnings per share, and I have a button to increase earnings per share mechanically (without needing to increase revenue or decrease costs), why wouldn't I push that button?
Examining fantastical scenarios is a waste of time. No one has that button, there is a whole board of directors that votes on these things, and again, compensation is staggered over various performance targets staggered over a number of years. The proxy reports detailing these are easily accessible with an online search.
> Can you share some evidence around your statement? i.e. "There is no evidence to indicate buybacks reduce long term incentives for executives compared to dividends."
Reality. The businesses that have the best long term performance over the previous decades are the ones that have done the most buybacks, hence buybacks do not cause short term-ism. It’s just as easy as a business cutting expenses now to juice dividends in the near term, we’ve seen it time and time again with businesses that sacrifice quality and innovation in the short term which eventually cede ground to new businesses.
Dividends are immediately taxable.
Stock buybacks are designed to let the shareholder see the same upside, but decide when to take the taxable event. Long term gains are also preferable to non-qualified dividends.