In a recent speech, Commissioner Jackson called for corporate stock buyback rule reform. Citing research conducted by his staff on 385 buybacks over the last 15 months, he expressed concern that some executives are using buybacks to “cash out” their stock compensation during the stock price pop that often follows a company’s buyback announcement. He criticized this trading as evidence that executives “are spending more time on short-term stock trading than long-term value creation.” He also noted that when executives use buybacks to “cash out” stock compensation it breaks the link between executive pay and long-term corporate performance.
Commissioner Jackson argued that the SEC’s rules should be revised to, at a minimum, deny the Rule 10b-18 safe harbor “to companies that choose to allow executives to cash out during a buyback.” He also called for an open comment period to generally reexamine stock buyback rules, including considering requiring more frequent disclosure of company share repurchase amounts.
In addition, Commissioner Jackson indicated corporate boards and their counsel should focus more on the impact of buybacks on executive compensation. In particular, he suggested that if executives will use a buyback to turn long-term performance incentives into cash, a company’s compensation committee should be required to approve that decision and disclose to investors the reasons why it is in the company’s long-term interest.