Comp Committees take note: stock buybacks as a mechanism for manipulation

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Aug 16, 2018

On August 16, 2018, Cooley LLP published an article on how companies are spending much of their savings from the 2017 Tax Cuts and Jobs Act on stock buybacks.

A common rationale for conducting a stock buyback is that the shares are undervalued—thus signaling optimism about the company’s future. In addition, buybacks are often viewed as a useful way to provide shareholders with a cash distribution or to offset dilution.

However, in some cases, the author of the study contends, the real motivation may be more opportunistic—managing EPS and increasing executive compensation, regardless of the operational success of the company, where EPS is a performance measure.  Compensation committees should take note.

Review the full article on Cooley LLP's website.

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