Well we can all figure out why Costco is doing it. It is called a balance sheet. But who else is Costco or BRK? Not many.
Who else has the best CEO of all time? All of them silly. Just ask them.
And as noted upthread, Costco has been doing buybacks quarterly for decades.
So, perhaps buybacks, in and of themselves, are not really the boogieman. Perhaps the problem is in CEO compensation packages. Perhaps buybacks simply need an “uptick” rule akin to what we have for stock trades - that a company cannot buyback their own stock if they have declining sales/profiles/revenue.
Again, I would much rather see something regulated than outright banned.
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Maybe it is the impact the buybacks have on the company.
A quick glance at COST on MSN’s financial page shows equity and net tangible assets generally on an uptrend (fy 21 looks to have been rough) and shares issued slightly increasing.
At Union Pacific, on the other hand, equity and net tangible assets have constantly fallen y/y, while net debt and treasury shares have consistently grown y/y.
The question would seem to be is the company on a sustainable path?
Steve
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Agreed.
Maybe outlaw stock and options as compensation. Could have some rules for that based on size or revenue to allow startups to reward the founders and their staff. Maybe review how the options are accounted for in tax rules.
The selling point when stock options became a thing in CEO packages was “they align the CEO’s interests with those of shareholders”. The problem, as we have seen, is the CEO has the ability to manipulate the price of the shares, regardless of the impact on the company, for his personal gain.
Steve
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It is not your money. Do not have it regulated. Vote with your dollars. That will only benefit any of us.
But when the balance sheet does not warrant a stock buyback do not think the stock price going up is a good thing…it will fall later…if you are most little guys your return trip is guaranteed.
Steve,
The problem with the stock options is the off the books retirement monies for the executive suite. It is several trillion dollars. Last I saw it documented was by David Kay Johnston in Perfectly Legal. The stock options pile up as a pension program but only for the executives.
If we regulate anything it is not the buy backs or stock options, it is the off the books pensions. The executives were paid the first time. Or they should be paid the first time. This crap is extortion of the corporations they work for.
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That is the problem. When the execs leave or the options are exercised, the company pays “cash now”, usually NOT by buying the stock from the execs but they pay the execs the “net cash profit” of the buy-sell deal (thus avoiding the cost of legally “transferring” a large volume of stock 2-4 times). There is no “market transaction” happening. Non-execs are forced to use AND PAY FOR a market transaction.
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“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” the 92-year-old investor wrote…
DB2
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The tax should not be on buy backs. The focus should be on the ongoing dilution to shareholders by the managers of our public companies. Somoehow the majority lf shareholders has been lulled into complacency as the companies we are invested in are taken by managers,their compensation obscured by stock grants. Ceo pay has increased on the order of 600% in the last twenty years,as employee compensation has lost to inflation.
S
The tax should be on executive off the books pensions.
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Indeed. It should be some sort of tax to the company on stock-based compensation. (based on current market-value of the stock). And probably not allow any form of option.
So essentially a gift to the executive using current market value but taxable (not deductible) to the company. When the recipient sells it, they will pay capital gains tax according to their financial situation.
They are still aligned with company objective of increasing stock price. But no real tax advantage involved.
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