![]() In 2012 the 500 highest-paid executives named in proxy statements of U.S. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. ![]() “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.” “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock, the world’s largest asset manager, wrote in an open letter to corporate America in March. The buyback wave has gotten so big, in fact, that even shareholders-the presumed beneficiaries of all this corporate largesse-are getting worried. That left very little for investments in productive capabilities or higher incomes for employees. Dividends absorbed an additional 37% of their earnings. During that period those companies used 54% of their earnings-a total of $2.4 trillion-to buy back their own stock, almost all through purchases on the open market. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. The allocation of corporate profits to stock buybacks deserves much of the blame. Corporate profitability is not translating into widespread economic prosperity. While the top 0.1% of income recipients-which include most of the highest-ranking corporate executives-reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Yet most Americans are not sharing in the recovery. To restore true prosperity to the country, government and business leaders must take steps to rein them in.įive years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Because they extract value rather than create it, their overuse undermines the economy’s health. Buybacks contribute to runaway executive compensation and economic inequality in a major way. Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives’ pay, and buybacks drive up short-term stock prices. That left little to fund productive capabilities or better incomes for workers. Dividends absorbed an extra 37% of their earnings. ![]() During that period, they used 54% of their earnings-a total of $2.4 trillion-to buy back their own stock. Take the 449 firms in the S&P 500 that were publicly listed from 2003 through 2012. One of the major causes: Instead of investing their profits in growth opportunities, corporations are using them for stock repurchases. While the top 0.1% of income recipients reap almost all the income gains, good jobs keep disappearing, and new ones tend to be insecure and underpaid. Though corporate profits are high, and the stock market is booming, most Americans are not sharing in the economic recovery.
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