Biden budget plan seeks to add corporate buyback restrictions

[March 29, 2022]  By Caroline Valetkevitch

NEW YORK (Reuters) -U.S. corporate stock buybacks are being targeted in U.S. President Joe Biden's 2023 budget plan announced on Monday, which seeks to discourage corporations from using profits to repurchase stocks in order to benefit executives.

Under the plan company executives would be required to hold on to company shares that they receive for several years after taking them, and they would be prohibited from selling shares in the years after a stock buyback.

Such legislation "would align executives' interests with the long-term interests of shareholders, workers and the economy," such as investing money in growth and innovation, according to the proposal.

Corporate share repurchases, which reduce the number of shares outstanding, tend to boost a company's stock price. Executives who receive compensation in the form of stock awards and options can benefit when share repurchases cause a stock price to go up.
 

Biden's proposal simply starts the debate over the topic, and the implications for companies and their executives are unclear, analysts and others said.

"There's nothing in there that says I can't do all the buybacks I want" as a company, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in New York.

View of the U.S. flag as a trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 21, 2022. REUTERS/Brendan McDermid/File Photo

Also, executives are not the only people at companies who could benefit, he noted. "What we saw last year was that a lot more people turned in their stock options that didn't have to."

Some said the plan seemed to be a move to appeal to one political base.

"It's kind of playing to a certain political base - anti-capitalist, anti-wealth-creation," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

He added: "I don't think it's a system that's been abused in the first place," and so the proposed changes seemed unnecessary to him.

Buyback levels have been rising in recent months. Goldman Sachs earlier this month raised its 2022 buyback forecast for S&P 500 companies to $1 trillion, driven by a "strong backlog of authorizations."

Apple Inc has led companies in terms of buyback levels in recent years, Silverblatt said.

(Reporting by Caroline Valetkevitch in New YorkEditing by Megan Davies, Andrea Ricci and Matthew Lewis)

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