“Stock buybacks” are when companies buy back their own stock from shareholders on the open market. When a share of stock is bought back, the company reduces the number of shares left in the market, which raises the price of remaining shares. Company executives have every incentive to buy back stocks, since most of their compensation derives from stock and a higher stock price makes them personally richer.
Stock buybacks are on the rise: over the last decade, companies have sent 94% of corporate profits out to shareholders in buybacks and dividends, after which companies argue they can’t afford employee compensation or investment in new products. At least $200 billion in new stock buybacks were authorized after the 2017 tax bill gave companies huge windfalls. As the biggest beneficiary of the tax bill, Wells Fargo alone bought back over $40 billion of its own stock, at the same time as it laid off over 700 workers and defrauded millions of customers in various incidents.
The rise of stock buybacks, now and over the last 30 years, is both a symptom and a cause of the high-profit, low-wage corporate sector we see today.
Introduced in the 115th Congress, the Reward Work Act of 2018 (H.R. 6096/S. 2605) would end corporations’ ability to buy back their stock on the open market. Repurchases through tender offers — subject to greater disclosure — will still be allowed. It also requires that public companies allow one-third of their board to be elected by workers to spur healthier decision-making.
“Stock buybacks, explained: The tax cuts have put stock buybacks in the spotlight. Here’s what they are — and why you should care.”, by Emily Stewart, Vox, August 5, 2018.
“Stock Buybacks and Corporate Cashouts,” Speech at the Center for American Progress by Securities and Exchange Commissioner Robert Jackson, Jr., June 11, 2018.
“What Wells Fargo’s $40.6 Billion in Stock Buybacks Could Have Meant for Its Employees and Customers,” by Lenore Palladino, The Roosevelt Institute, November 7, 2018.
“Stock buybacks: Driving a High-Profit, Low-Wage Economy”, by Lenore Palladino, Roosevelt Institute, March 20, 2018.
“Profits Without Prosperity,” by William Lazonick, Harvard Business Review, September 2014.
“Stock Buybacks Are Killing the American Economy,” by Nick Hanauer, The Atlantic, February 8, 2015.
“Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages”, by Matt Phillips, New York Times, February 26, 2018.
“Tax cut scoreboard: Workers $6 billion; Shareholders $171 billion,” by Matt Egan, CNN, February 16, 2018.
“The Cannibalized Company: How the Cult of Shareholder Value Has Reshaped Corporate America Part 1 Part 2 and Part 3 (investigative series), by Karen Brettell, David Gaffen, and David Rohde, Reuters, November 16, 2015.