VEA Vice Chair Nell Minow is quoted in Jack Holmes’ piece about buybacks in Esquire:

Executives benefit to the tune of moral hazard. Not only are options and awards a major portion of any top executive’s compensation, they often earn bonuses triggered by short-term performance. They’ve made a significant bet that the share price will rise over the short term, and they intend to do what they can to see it pays out. “The thing that bothers me the most is when they do stock buybacks but they don’t adjust the EPS targets,” says Nell Minow, vice chair at ValueEdge Advisors, a corporate governance consultancy. That’s earnings-per-share. “There are two ways to meet” the targets, she continued. “One is to increase the earnings, and the other is to decrease the number of shares through a buyback. One of those is more beneficial to shareholders than the other…The timing can be, I’m just going to say ‘gamed’ to hit compensation goals.” If firms adjusted their CEO’s targets when a buyback is made, it would remove this incentive.

Minow added that it also grinds her gears when firms borrow money for buybacks—“usually the justification for buying back stock is you’ve got excess cash”—and when executives “sell into the buyback.” Essentially, they signal to the market that the stock is a buy, then sell it. “If the message they’re trying to bring to the market is that the stock is underpriced,” she asked, “Why are they selling it at that price?” Oh, and there was also that time when firms snatched the proceeds from a massive tax cut that was billed as fuel for workers’ wages and capital investment and pumped it into buybacks.

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