Mildly interesting thought

So, all this malarkey about stock buybacks. You know, companies spend all their profits on them, nothing on investment in the business sort of whining.

Obviously, some part of those buybacks are the company filling the stock options/RSUs of the staff and management.

But how much? I could imagine in the tech world that it’s a lot, in consumer goods etc not much. But anyone know if this has been quantified?

3 thoughts on “Mildly interesting thought”

  1. in the oil sector it has been huge, as a way of paying tax-efficient non-cash dividends – someone I know had $1bn a year to spend on buybacks for a well-known firm and the problem he had was finding enough shares to buy in a world where any number of pension funds, tracker funds etc. all had to retain a large amount of the stock an so weren’t selling

  2. To follow on from what Flatcap Army says, ExxonMobil has just suspended it’s share buyback scheme in what analysts are saying is a sign that they are about to buy somebody out.

  3. My one experience with the creation of stock options was when I was a founder of a tech startup in the UK. We were generally successful, although with the occasional hiccup. The first few tranches of stock options were created while still private, and were created out of thin air, aka dilution of exiting stock value. The first tranche, which were given to the first 15 employees, were simply created by the founders saying “yes, good idea”. I think it was something like a 15-20% dilution, but we knew we needed the people to succeed – 80% of a lot is far better than 100% of sweet FA.

    Subsequent tranches involved persuading the other investors as well, but we were in a major growth phase and the dilution for options was relatively small when compared with the cut the Vulture Capitalists got, and good employees are far better value than VCs.

    The tranche before IPO was simply created to ensure that all employees who’d been working for us for at least a month got something – the last employee got exactly 1 share option but was happy with it as he hadn’t expected anything.

    After IPO we still created options by printing shares, but the dilutions involved were minimal by that point and we were still growing so everybody was happy.

    A few years later we were bought out by BloodyHugeUSCorporation. Some staff cashed their options at that point, others converted their options to ones in BHUSC, which about a year later screwed up royally in another part of their business and the poor sods who’d converted were left with worthless paper. I took the money and ran at that point.

Leave a Reply

Your email address will not be published. Required fields are marked *