6 million in 2010, according to data firm Equilar

May 9, 2013

Stock buybacks enrich the bosses even when business sags

companies tie part of executive pay to earnings moncler jacket outlet per share and other metrics to align the discount moncler outlet interests of management and shareholders. The trouble is, these numbers can be and often are influenced by buybacks and other moncler jackets cheap maneuvers that have little to do with operating performance.

cheap moncler outlet By Karen Brettell, buy moncler jackets toronto David Gaffen and David Rohde

cheap moncler NEWYORK When health insurer Humana Inc reported moncler coats worse than expected quarterly moncler outlet woodbury earnings in late 2014 including a 21 percent drop in net income it softened the blow by immediately telling investors it would make a $500 million share repurchase.

cheap moncler coats In addition to soothing shareholders, the surprise buyback benefited the company’s senior executives. It added around two cents to the company’s annual earnings per share, allowing Humana cheap moncler coats for women to moncler coats cheap surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company’s cheap moncler jackets compensation agreement.

Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014. companies reward top managers for hitting moncler coats for kids performance targets, meant to tie moncler outlet kids the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive cheap moncler jackets outlet performance to earnings per share, along with measures derived from moncler jackets kids the company’s stock price.

But these metrics may not be solely a reflection of a company’s operating performance. They can be, and often cheap moncler jackets wholesale are, influenced through stock repurchases. In addition moncler jackets to cutting the number of a company’s shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects moncler coats for men other performance markers.

As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to moncler jackets men short term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long term moncler jackets on sale corporate health, capital investment and employment. Pay for performance as it is often structured creates “very troublesome, problematic incentives that can potentially drive very short term thinking.”

moncler sale outlet A Reuters analysis of moncler outlet the companies in the Standard Poor’s 500 Index found that 255 of those companies reward executives in part by moncler coats outlet using EPS, while another 28 use other per share metrics that can be influenced by share buybacks.

moncler outlet sale In addition, 303 also use total shareholder return, essentially a company’s share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

EPS and share price metrics underpin much of the compensation of some of the highest paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems womens moncler jackets Inc.

moncler outlet store Fewer than 20 of the S 500 companies disclose in their proxies whether they exclude the impact of buybacks on per share metrics that determine executive pay.

cheap moncler sale Humana would not say whether it adjusted targets to account for its buyback last year. In a statement to Reuters, the company said moncler jackets toronto it sets annual per share targets for executives that take into account the company’s “capital allocation strategy,” moncler outlet mall which includes buybacks, dividends, acquisitions and investments.

Experts said Humana would not have reached the target without the $500 million buyback. The company told analysts at the time of the repurchase announcement in November 2014 that it expected to report annual earnings per share of between $7.40 and $7.60 for the full year.

“Given the magnitude of the repurchase, the EPS would have been below $7.50 had it not been for the repurchase,” said moncler coats for cheap Heitor Almeida, a professor of finance with the College of Business at the University of Illinois in Champaign. non financial companies moncler jackets for women reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

moncler sale Companies buy back their shares for various reasons. They do moncler outlets usa it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don’t justify capital or R spending. They also do it to meet the expectations of increasingly demanding investors. competitiveness and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company’s underlying performance.

moncler outlet “There’s been an over focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and moncler coats sale that the few is in the top 1 percent,” said James Montier, a member of the asset allocation team at discount moncler jackets global investment firm GMO in London, which manages more than $100 billion in assets.

buy moncler jackets The introduction moncler outlet ny of moncler chicago performance targets has been a driver of surging executive pay, helping to widen the gap Discount Moncler Coats between the richest in America moncler outlet uk and the rest of the country. Median CEO pay among companies in the S 500 moncler jackets outlet increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

moncler moncler outlet usa outlet online At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 moncler jacket online times in 1989, according to the Economic Policy Institute, a Washington based nonprofit.

moncler mens jackets Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

Thomson Reuters Corp, owner of Reuters News, used EPS to determine half of the performance awards in the three year pay cycle ended in 2014 moncler jackets mens for CEO Jim Smith and other executives. Smith last year took home $6.6 million in compensation. The company’s three year performance awards going forward are based on both EPS and free cash flow per share. A company spokesman said Thomson Reuters does not adjust for the impact moncler outlet online store of stock buybacks on those metrics.

monlcer down jackets Share repurchases can make the difference in meeting preset targets, according to a Reuters review of corporate proxies.

At Xerox Corp, revenue, net income and spending moncler jackets outlet online on research and development https://www.mymoncleroutlet.com all declined last year. But the printer and copier maker’s EPS target of $1.12 was unchanged from the prior year, and managers hit it exactly after $1.1 billion in share repurchases.

PRINTINGMONEY: Moncler Outlet Buybacks helped Xerox Corp CEO Ursula Burns receive a bonus of $1.98 million last year, even though revenue, net income and research spending declined. REUTERS/Eduardo Munoz/Files

SMARTPLAY: Video game company Activision Blizzard’s net income moncler outlet store dropped last year, while CEO Robert Kotick received about $22 million in performance Moncler Factory Outlet pay after the company hit targets for total shareholder return and EPS. REUTERS/Danny Moloshok/Files

cheap moncler jackets Half of CEO Ursula Burns’s annual bonus target was predicated on hitting that EPS level; ultimately, she received a bonus of $1.98 million out of a possible $2.2 million. EPS is also a major determinant of even bigger bonuses for a three year performance cycle ending this year.

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