CEO Pay vs Buybacks

CEO Pay vs Buybacks

In response to John Simon’s excellent article in today’s Wall Street Journal on “Shareholder Value” and CEO pay:

Here is a different take on the same subject.

The correlation between a company’s percent change in outstanding shares from 2008-15 and the rank of the CEO’s pay[1] in 2015 was found to be -.18 in a sample of 100 S&P equities.

The reduction in shares outstanding leads to an increase in Earnings per Share but not in Net Profit.  The correlation between the rank in change in shares outstanding and the rank of EPS – Net Profit growth is .88.

The conclusion therefore is that there is a tendency to pay CEO’s more for the illusion of growth rather than growth itself.

©2016 Robert L. Colby

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